Econ 545 Quiz 1 Essay

1562 WordsAug 10, 20127 Pages
Exercise 1 Question 1- Everyone’s Gasoline Problem. We are all familiar with fluctuating prices of gasoline at the pump. Why does this happen? Let’s take a closer look at what it takes to get a gallon of gas into your car. All gas companies follow the same basic formula. Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Gas Price The problem with this formula is not all of these components contribute equally. So let’s take a look at each of these components and what economic impacts have on that mentioned gallon of gas .Crude oil is 69% of the cost and those cost exist of finding it, getting it out of the ground, and transporting it to the refinery. Refining the crude oil cost another 6%. Selling the gasoline is 10%…show more content…
So when demand increases and a supply doesn’t change, a shift in price will happen. This shift will move to the right causing a new Equilibrium. Demand refers to the quantity of products people are willing and able to purchase during some specific time period, all other relevant factors being held constant. Price and quantity demanded stand in a negative (inverse) relationship: as price rises, consumers buy fewer units; and as price falls, consumers buy more units (Stone 75). When a company experiences a new equilibrium price causing a higher demand with this higher demand the coffee population will have the opportunity to pay higher wages and invest in more coffee R&D and processing technology and create a better infrastructure for the Starbucks corporation. If this demand does exist it would allow other companies to enter the market giving star bucks more competition. Once all the smoke settles with this new product the demand will begin to slow down because of increased supply, competition and more growers will produce more of the needed coffee beans needed to product this new coffee type. Starbucks is constantly doing this with its new products. Originally they were the new kids on the block with the newest premium coffee, but due to this trending copy cats have entered the market, and once the consumer realized that prices went up. They to begin to find alternatives to drinking premium coffee. Several of these substitutes

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