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What Causes Gas Prices to Increase?  

Gas Demand vs. Supply

As prices continue to rise in most if not all states here in the U.S., one should ask themselves as to what contributes to the low supply. I’m sure economists could explain in more detail as to why demand has always been higher than that of supply. I believe it is price control. It is commonly known that gas stations will agree on a set price in order to share the market versus competing causing each to lower and lower their rate. Alexander Djerassi notes an important factor in the rise or fall of gasoline prices is price and supply available of oil.

The number of people now driving and the change of social standards of one car per family versus today that almost every eligible family member owns and drives a vehicle. With this in mind, the demand increases and increases. Alexander Djerassi would agree that as consumers drive the demand higher and allow for prices to be determined by demand. I wonder if our demand for gasoline decreased would prices decrease as well? I suppose that allows for another topic to arise, such as decreasing the demand of gas by using electric or hybrid vehicles. Another Key factor as to why gas prices continue to rise is how it is processed and transported. Not all gasoline is made equal, a process of refining oil is completed in order to remove impurities. How much processing and how long it will take contributes in the decision of what the price will be for gasoline. Now I’m sure we all have noticed that gas prices rise during the holidays and summer. We all can agree that summer is when most families or individuals tend to take vacations and travel outside their home cities. This allows the sellers to raise prices according to the high demand.

Lastly another factor contributing is the value of the Dollar, the value of the U.S. dollar has been steadily declining over the last decade. While demand increases and supply remains steady. Not to mention taxes from federal, state, and local governments that are added to the oil and gas prices. Now we consider the logistics, how will this gasoline make it into all of the consumers’ vehicles? Transportation of this gasoline is costly and making it available to our local gas station is no easy task. We must consider that cost has to be added to the price. Not to mention what sales taxes will be as well as needed marketing costs. I believe all these costs as well as seasonal demand will always cause fluctuation in gas prices. However prices do differ from state to state, it is somewhat comforting to know that regional demand is being taken into consideration. For example the average price for gas in California is something like $3.90 per gallon versus Texas at a much lower price of $2.56 per gallon. Viewing the price difference is comprehendible due to location, wages are significantly different and the cost of living is lower as well.

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