Everyone's Gasoline Problem

Everyone's Gasoline Problem

As working adults, nearly all of us drive. We are then nearly all too familiar with fluctuating gas prices. Gas is directly related to oil. Oil fluctuates depending on supply and demand. The major contributing factor here is the cost of raw materials, the supply, output and the current level of demand. If we compare the price fluctuations of crude oil to the local area of Virginia Beach, VA we can clearly see the direct correlation in the picture below (Gas Buddy, 2012).

This graph shows the fluctuation over the past 5 years.

Knowing the world news is very important in the fluctuations of gas prices. An example is the recent civil unrest in West Africa oil fields during the Arab Spring. This can be seen reflected in the above graph. If we look back years earlier toward the middle of 2008 when the economy was in the greatest point of recession prices for oil and gas drastically dropped from around $145 a barrel to $40 a barrel. This is likely related to the massive decrease in spending, lowering the US demand for oil (Gas Buddy, 2012).

Chapter 3, Question 14

Starbucks is a great example of supply and demand at work. Assuming an equilibrium is in place currently for supply and demand of premium coffees, an introduction from Starbuck's premium blends to the world creating a substantial rise in supply and demand would give an interesting movement to a new equilibrium. As price is based upon supply, demand, raw material and labor costs; social, environmental, and economic changes can cause great shifts to the price of premium coffee. Under the assumption that a hard freeze eliminates Brazil's premium coffee crop, the supply has greatly decreased while the demand currently remains the same. This will impact the cost of raw material and labor which will almost instantly increase the price of premium coffee. This increased price may then reduce the demand. This reduced demand will gradually reduce the price of coffee but also hurt the current craze for premium coffees.

Chapter 3, Question 15

The impact of reduction in supply of both Oranges and Corn were quite large and nationally felt. Oranges are used in many things beyond the obvious food consumption. Citrus pulp is use for such things as stockfeed and cat litter (Morton, 1987). Peels are used for perfumes and soaps. One of the other common uses of Oranges is for medicinal purposes. Corn is similarly used for such things as stockfeed, litter, and medicinal purposes but it is not so commonly known that over half of the US corn crop is used to make beer for some of the largest macro breweries.

A reduction in supply increases will impact the costs. Increasing the costs of oranges and corn does