Ch.2: Gas Prices Fact or Fiction: A Primer on Supply and Demand

http://www.mises.org/story/1936

This article is very well written and has many smart economic thoughts. The question throughout this article is why gas prices are so high are and what is making them go even higher? This intriguing question might have been wondered about by many people. Tom Lehman is the person who wrote the article and he said, “The only reasonable answer to this question involves supply and demand.” Supply and demand are very important things that we learn in everyday economics. This is what the article basically explains and clearly tells us.

First, just incase you didn’t know, demand is a desire that buyers have towards various goods and services that they are willing and able to purchase. Supply on the other hand is the quantity of goods and services that sellers are willing and able to supply, to the market. Some important things that Tom Lehman points out in this article is that there is a loose connection between the world price of crude oil and the price of gasoline, and the rising price of crude oil in recent years can partially explain the rise in gasoline prices. This is very significant towards finding why gas prices are high because it tells us that crude oil is apart of it. Also, through the graphs from the article I figured out that the patterns of crude oil and gasoline increase and decline at similar paces.

This article tells us that markets don’t work fine under normal circumstances and fail under crisis situations. Government doesn’t regulate prices and impose price controls during a crisis (such as after a hurricane) to stabilize markets. Instead, the national disaster emergency association takes control of these issues. Lehman says, “We experienced this when hurricane Rita hit and the government couldn’t find any solutions to all the problems and one of them was oil.” This resulted in many gas stations in the Gulf to raise their prices because of demand and that left people horrified.

This article also tells us that when the demand of oil goes up like during hurricane Rita the supply goes down. This causes oil prices to raise and people getting mad. Lehman says, “There certainly are rational reasons why the price at the pump jumps immediately when some change occurs in the global oil and gas markets, and the laws of supply and demand do a good job of explaining this connection.”

Lehman said during this article that fuel conservation calls for less driving by a jawboning president are unnecessary and unwelcome. This is true because we get angry at these people and the government.

This article relates to the chapter because we talk a lot about how supply and demand effect things like oil prices. This article is all about oil prices and how supply and demand changes it. All these topics and ideas are very relevant to the chapter which is named the operation of a market.

I personally think that oil prices actually do involve crude oil and that helps us conclude the prices of oil at a certain time. For example, crude oil must cost a lot because gas prices are really high right now. This article is very good in explaining how supply and demand works and it shows precise examples of each. All in all, it was a great article written by Tom Lehman and I enjoyed reading and learning from it.