by B Smith

Created on: November 02, 2008

Who's to blame for the surge in gas prices?

We can lay the blame for the rising and the decreasing prices on the law of supply and demand. It is a simple concept that most people do not understand.

It works like this: demand goes up and the price goes up. Demand goes down and the price goes down. That is why gasoline prices go up in the summer months and down in the winter months. Americans drive more when it is warmer and the higher gas prices reflect that trend. It happened under Reagan, Bush the first, Clinton, and Bush the second. It will continue to happen as long as there is higher demand in the summer and lower demand in the winter. If one were to look at home heating costs one would see the same concept.

Still not convinced? Consider this: Say I own a 1966 red Ford Mustang. Now pretend that I have the only one in the world and that there are several people that want it. "Fine, the bidding starts at $100,000.00". Fifty percent of the bidders immediately leave, but the others start. The bidding continues up to $2,000,000. The ones that are bidding dwindle down to two men. It continues up past $3,000,000.00. Just as one puts in his official bid of $3,400,000 the other one receives a call on his cell phone. It is his business partner and he informs him he has just secured a 1966 Ford Mustang that had, up until now, been unbeknownst to the world. The bidder stops bidding and lets the other guy buy it at $3.4 million. The principle is that the one was willing to buy until his demand had been met.

Likewise, when buying gasoline, consumers are going to buy until their demand has been satisfied. Their demand may be altered by market conditions. They may buy less gas, start buying more fuel efficient cars, etc. but they will buy until their demand is satisfied. Summer driving? Higher demand! Winter driving? Lower demand!

Okay, maybe that one won't convince you and you want something more than that.

Let's go back to the mean old law of supply and demand. According to Wikipedia, http://en.wikipedia.org/wiki/Demographics_of_the_Uni ted_States, the population of the United States in 1976 was roughly 220 million and according to the census bureau, http://www.census.gov/, the population today stands at 305 million. That is an increase of about 38%. If the number of cars increased at the same percentage, then it would stand to reason that demand for gas also increased at that rate. I do not have the exact numbers but I know this: the number of oil refineries that have been

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