Supply, Demand and Gas Prices

Cheryl and I were talking about our budget this week -- as I'm sure most couples do. We were trying to figure out just why we suddenly don't have any money.

Is it the extra we spend on our grandsons? No, we buy only one case of diapers that usually costs around $15.00 -- we certainly shouldn't even notice that in a month.

Are we eating out more? No, that's not it. In fact, since Cheryl decided to put us on a diet, we're actually eating at home more and eating out less.

Then, it dawned on me, we're buying the same amount of gas per month, but spending nearly twice as much for it.

Simple supply and demand, right?

Well, for most things, like say oranges, that would probably be the case. When the orange crop is low, we pay more for our oranges, but we, also, can lower our demand. If I was going to have to pay $10.00 for a bag of oranges, I would most likely not buy oranges -- hence, the high price will cause the demand to drop.

But, gas does not work that way. Case in point, my own gas usage.

I drive 50 miles to work one way, five days a week. I fill my 6 year old mini-SUV's tank once every four days. The only variance is the once per month we visit our grandsons in Green Bay. For that, I purchase one extra tank of gas.

I can't control my gas usage. I keep my car in tip top shape -- change my air filter every other oil change, whether it needs it or not. My vehicle is maintained so that I get the most mileage per mile possible -- I average between 25 and 28 MPG. I try, in the summer, to not run my air conditioner. If I could take a bus or a train that would drop me off near work -- and wouldn't take 6 transfers and 3 hours of travel time -- I would only drive to work on days when I have other appointments.

Now, I could buy another car that gets better gas mileage, but Cheryl and I can't afford two car payments, and her car is 14 years old. It's time for it to be replaced.

Anyway, this is a long way to get to my point which is just because gas prices go up, the demand is not falling off as it does in other goods. In fact, the demand stays the same -- it probably goes up some, as we gain new drivers, etc.

Now, Jake brought up a point in a comment he made (BTW, Jake, that was a guest blog, which means I didn't write it) that when you adjust the cost of gas from the 70's to now, we're actually paying less. I haven't done the math, but I'll take his word for it.

But, in the 70's, we had a real shortage. I remember the long lines at the pump and the stations that were closed due to a lack of gas. Plus, you couldn't even buy gas on Sundays.

I don't buy this "shortage" that is driving these prices up. None of my local gas stations have had to close due to a lack of gas. Plus, I really don't trust any industry that is producing record profits while telling consumers they're raising prices because of a shortage. (When you can afford to grant a retiring CEO a 400 million dollar retirement package -- you aren't hurting for money.)

I don't recall orange growers posting record profits during years the orange crop sucks.

God Bless.