Rising Gasoline Prices

It happens during every holiday, the gasoline companies know people will be traveling to see family, and the demand for gasoline will be higher than normal. With this high demand for gasoline, I would presume that that would be the reason for the increased gas prices.

That is not so apparent. It is in turn the US economy is indirectly causing a rise in gas prices. The investors say that the reason for the increase in price is because the Federal Reserve is attempting to stimulate our economy by buying $600 billion dollars in bonds. It is a bad idea from the point of the government to buy that much in bonds because people need to travel for vacation, and if that means spending more money on gasoline and airplane travel, that means they have less income for other goods. This means that there is less spending on normal goods because of the increase in spending on gasoline.

Gasoline has positive price elasticity because when demand increases then supply increases. People drive daily and use a set amount of gasoline, but when there is an increase in a paycheck, i.e. a bonus, then people have extra money to spend. That is when people usually spend more money on normal goods. There is not enough money for superior goods though.

The Federal Reserve is going to be spending a steady seventy five billion dollars in bonds monthly throughout the middle of next year. I do not understand their reasoning to start the spending right as thanksgiving is approaching. This crisis is going to affect everyone, from a simple two-hour drive, to people buying airplane tickets across the country.

Once again, this is not the gasoline companies exploiting their customers by knowing they need to buy gasoline, but it is our own government that is doing this to us! Spending money to stimulate the economy does not sound like the best idea right now. With them spending money we in turn have to spend more money on gasoline, therefore cannot buy other goods that help companies.

It is hard to startup a new oil company, therefore there are a few companies that take control and earn the most revenue from increased prices. I hope that the government is making sure that they are not setting prices together and putting price ceilings on their products which force the customers to spend more money than needed. If demand for gasoline goes up then so does the price, but since demand hasn’t increased yet, then why have the prices?

http://www.foxnews.com/us/2010/11/08/retail-gas-prices-rise-thanksgiving-prep-begins/