Throwing Gasoline on the Fire

Good Morning class. Open up your economics books to Chapter Four, commodities.

Gasoline is a commodity. That means that no one's gasoline is that much different from anyone else's gasoline. Yes Bobby, even Chevron with Techron. These are known as marketing additives. These are used by the marketing departments at large oil companies to convince management that they should keep the marketing department.

Can anyone tell me why gasoline costs twenty cents less in Waycross than it does in Valdosta? The owners in Valdosta are criminals? OK, next... the owners are greedy scumbags? Not quite, anyone else? Ah, Mr. Rose ... No I don't think the white people have conspired to give African-Americans AIDS and raise their gas prices. White people are paying the same gas prices as you. Not what you heard? Well, trust me on this one, Mr. Rose.

Look in the book people! Did anyone read the book? Thank you Miss, did you all hear that? "the law of supply and demand". A commodity responds nearly perfectly to the law of supply and demand. Get too much of something, the price goes down. Run short of something, the price goes up. No that's not illegal. No politician has ever succeeded in outlawing the law of gravity or the laws of supply and demand. It just is what it is.

What was that? Why doesn't the oil company just keep the price the same because their costs did not go up? Let's look at places where they do just that. The governments of China, Russia, India, Venezuela own their own oil companies. They did not raise gas prices with the world price. They did this to keep their citizens happy and docile.

No, the US doesn't drill enough oil to be able to pull this off and even if we could, we shouldn't. Because people, look over at the wall, Milton Freeman's quote, read it after me. "There is no such thing as a free lunch."

Here, look at this chart. If you price under the market price then demand goes off the chart. Supply? You can't make enough gasoline to supply an infinite demand. You have shortages. They have shortages in all those countries. Their people are sucking up so much gasoline that they are having trouble getting enough to sell for dollars. Are the people grateful? Of course not, the people think that the gas shortages are caused by greedy rich people. Yes, they blame the rich, just like you.

Now, People, People, I am surprised at you. No politician EVER got elected by telling people that gas prices are their own fault. There are reasons politician lie to us. Yes, Mr. Nicholson, we can't take the truth.

Now where were we, oh yes, the Convenience stores charging less in Waycross. When the price of gas was rising did the gas stations make a lot of money? How many believe that? Well you're all wrong.

When prices go up quickly, stores have to raise their prices even faster; otherwise they will not have enough cash on hand to buy the next tanker load of gas. Any dollar in profit they make is eaten up by the rising replacement cost.

Gas stations make money when the price of gasoline goes DOWN. They lower their prices slower than their suppliers do and finally recover the profit that they lost when the prices went up. No, making a profit is not a bad thing Mr. Engles. Really, Marxism went out with the Berlin wall, remember?

Waycross is the home of the corporate headquarters for a major gas jobber and convenience store operator. They are lowering their prices in lock step with their supplier rather than slowing. Why? They got tired of the local paper calling them rude names for selling gas at the market price when gas prices went up. Basically, they purchased some peace and quiet in Waycross and made their profit in other towns.

Mr. Engles if you continue to made rude noises when when I mention profit I will have to ask you to leave.

The next time you go to buy gas, remember this. While you are bitching about gas prices in Waycross you are also paying $3 dollars a gallon for bottled water and $5 a pound for chips. I thought so, you never even noticed.

OK, for next week. I need 2,000 words on why people are so ignorant about the price of gas. I believe you are all experts on this matter already.

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Yes, there are actually facts behind this prissy post. Go to Inside the Nest if you are not driving or operating heavy machinery.

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