"Gasoline Prices: Fact or Fiction"

Paper Summary:

The article "Gasoline Prices Fact or Fiction: A Primer on Supply and Demand" by Tom Lehman, reviews a number of theories about the rise in gas prices and determines whether or not these theories are fact or fiction. The paper shows that the ideas have risen over the past few years, especially following natural disasters.

From the Paper:

"The first idea presented is that "Gas prices are controlled entirely by wholesalers and big refinery oligopolists who illegally collude and profiteer at consumer expense." This idea has been deemed fictional because gas prices are controlled by supply and demand. This theory completely ignores the demand for gasoline. The demand for gas is price inelastic because when prices change consumers buying habits change much less than the change in price. Gas is a necessity and with the rise and fall of prices consumers do not have the time to react. Gasoline has very few, if any close substitutes and in the short run consumers don't really have a solution. Consumers could go out and buy hybrid cars but that would be a long term solution that would cost a significant amount of capital up front, much more than the temporary rise is prices."

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