Monday, September 12, 2005

More Notes on Oil

Just a few more quick notes on the economics of oil and gas. This website provides quick access to historical prices by state.

Bryan Caplan talks about the increased variance in gas prices. I think this is an obvious result of the reaction to the hurrricane. News is spotty and people react very differently and markets take time to process new info and adjust their expectations. But Bryan lays out some additional reason, go read it.

Also Victor from the Dead Parrot Society has a nice recap of some of the debate on the price effects of suspending state tax on gas. He also provides some data on Georgia's suspension of the gas tax. Here is another study I found, suggesting some decrease in retail prices, but not nearly the full amount of the state tax.

Finally, my original plan in posting was to discuss why I think students have difficulty understanding supply and demand in the context of gas prices. Let me say briefly I think it is a function of their view of prices. They don't believe prices are the result of an interplay between supply and demand, but rather they believe price reflects some markup over cost. They do not understand the interplay of supply and demand. I think when I teach it I will spend more time on the supply side and emphasize that the determinants of supply include not only current costs, but expectations about costs and future prices.

Lawrence White of the Division of Labour asks this question:

I have a question for those who oppose gasoline price “gouging” …

…where “gouging” is defined as a larger-than-normal markup over the price a gas station paid to fill its tanks two or three weeks ago. Would you mind if I siphon the gas out of your car’s tank, and pay you for it the price you paid last week,
before the price of refilling went up?

Keywords: Oil, Gas, ECO120, ECO305

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