The price of gasoline is definitely driven by the concept of supply and demand. When prices fall, quantity demand will rise, when price rises, quantity demanded will fall. This statement is true in most cases. But gasoline is a necessity to most Americans. The demand for fuel does not decrease when the price increase. Consumers often influence the price of gasoline. Gas prices in the late spring and summer months are the highest during the entire year. These are the periods when consumers drive the most. This is the time when most construction and manufacturing jobs are in operation. Like now, in the winter, gas prices are at the lowest point in a six month period. The six-month gasoline price chart I viewed at chicagogasprices.com indicates this notion. The average price of gasoline in the Chicago area is between $3.25 – $3.70. In the summertime, we were paying gasoline prices of around $3.80 – $4.50.
Consumers are deciding to drive less for recreation and more of going straight from point A to point B. The supply of gasoline has increased during the winter months, and producers capitalize on that surplus with the increased driving by consumers in the upcoming spring and summer months, while increasing the price of gasoline substantially. But in the news, you continue to hear of crude oil shortages. Big Oil Companies reported huge profits on high gasoline prices continuously for the past 4 (Froomkin, 2011). The Big Five oil companies made $36 billion in profits in the second quarter of 2011 (Froomkin, 2011). Consumers are now looking for alternative solutions in transportation because of the unsavory price fluctuation of gasoline prices while oil companies post major profits.
If Starbucks decided to introduce a new premium blend, the demand for the premium blend will increase. The loyal customers of Starbucks would definitely try this new blend. As the demand for the premium blend increases, the market will move to a new equilibrium. The demand curve would shift to the right because the change in quantity demanded warrants an increase in supply to keep track with the market. The equilibrium price and the quantity will increase. The more customers purchase the product, faster Starbucks has to supply the coffee according to the demand of the consumer.
The opportunity cost of not producing more premium blend will result in loss of revenue. If a hard freeze eliminate the Brazilian premium coffee crop, the price of premium coffee will be affected. In the short term, Starbucks will slightly benefit from the shortage in premium coffee beans. The demand for this now limited time premium roast blend will definitely lead to a mad rush to Starbucks and stores for this premium blend. The supply curve would shift to the left because of the change in quantity supplied. This causes quantity to decrease with an increase in price. Customers are willing to pay top dollar for something that they prefer.
I believe the internet has created a more competitive market. This competitive market has many buyers and sellers. There are many standardized to individualized products in this market. There are really no real barriers to market entry or exit. The Internet has become a platform that has completely changed the way a company can do business. The internet has allowed small business to become multinational operators because of the market chosen. Price and product quality decision can be made using this market because research capabilities are right in front of you. The internet allows buyers and sellers of any size the ability to access the market and conduct business. All the major producers and sellers market themselves via the internet and are able to ship anyway in the world.
Chicagogasprices.com(2013). Retrieved January 2013, from
Froomkin, D. (2011, July 29). Big Oil Companies Post Huge Profits On High Gas Prices. Retrieved January 22, 2013, from Huffington Post: http://www.huffingtonpost.com/2011/07/29/big-oil-profits_n_913452.html