To: ssstewart
"Let's say I am a dealer and I get a 10,000 gallon delivery for which I paid $2.50 per gallon. Then the next day after the tanker leaves, I raise my prices to $3.00 per gallon due to a calmity that has happened somewhere else in the country."
The answer to your question is YES! In your example, you imply that supply must not be high enough to meet demand because of the tragedy (or the company would not be ABLE to raise the price of what it bought earlier). If the supply is lower than the demand, it does not matter when it was bought or how much was paid for it. The price must go up because supply is lower than demand. As I noted, the higher price plays a vital role by making people buy less of the product so more will have some of it, the higher price attracts more supply, etc., etc. It is how any economy works.
The oil company gets to keep the windfall or higher profit because it took a great risk in buying oil that could have gone down in value. I know your gut reaction is to be mad at the oil companies for making a windfall (really it is just their return for the risk they took, so it is not a windfall), but you are overlooking the way a market functions. If we try to regulate prices, we have a mess (people buy too much of the scarce product, less production to make up the shortage in supply, etc.). I see the same kind of arguments that you make by liberals because they really don't understand economics or they don't believe in economics (or maybe they think they can change the laws of economics).
41 posted on
09/01/2005 11:33:08 AM PDT by
Hendrix
To: Hendrix
Hendrix, I appreciate the education.
However, not being an economist, I just simply disagree with the premise as these thing usually happen after a crisis. I would whole heartedly support the dealer if in fact they were out funds for which they would have no other recourse in which to revover without a price increase, after all, I'm sure he did not get into the business for his helath!
But in my simple minded way of looking at things, he is taking advantage of a situation with no defendable position as to how he would be taking a hit for selling the gas at the cost he contracted for when he bought it. After all, why did gas go to $4 and $5 per gallon in Atlanta. There was no real crisis there and their deliveries had already been made by the local jobber...
I'm not in favor of any type of price control as I believe in a free market society, but it still seems like gouging.
With that, I'll sit back and try to learn something.
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