Posted on 06/05/2006 8:43:21 AM PDT by thackney
Here's what one reader wrote: "Williams, I can understand how the destruction of Hurricane Katrina and Middle East political uncertainty can jack up gasoline prices. But it's price-gouging for the oil companies to raise the price of all the gasoline already bought and stored before the crisis." Several other readers made similar allegations. Such allegations reflect a misunderstanding of how prices are determined.
Let's start off with an example. Say you owned a small 10-pound inventory of coffee that you purchased for $3 a pound. Each week you'd sell me a pound for $3.25. Suppose a freeze in Brazil destroyed half of its coffee crop, causing the world price of coffee to immediately rise to $5 a pound. You still have coffee that you purchased before the jump in prices. When I stop by to buy another pound of coffee from you, how much will you charge me? I'm betting that you're going to charge me at least $5 a pound. Why? Because that's today's cost to replace your inventory.
Historical costs do not determine prices; what economists call opportunity costs do. Of course, you'd have every right not to be a "price-gouger" and continue to charge me $3.25 a pound. I'd buy your entire inventory and sell it at today's price of $5 a pound and make a killing.
If you were really enthusiastic about not being a "price-gouger," I'd have another proposition. You might own a house that you purchased for $55,000 in 1960 that you put on the market for a half-million dollars. I'd simply accuse you of price-gouging and demand that you sell me the house for what you paid for it, maybe adding on a bit for inflation since 1960.
(Excerpt) Read more at jewishworldreview.com ...
But it is the cyclical nature of the industry which makes it really difficult to solve the problem. Who wants to invest millions or billions of dollars in projects or infrastructure which are unlikely to pay out? The money has to be there up front, or it just won't happen. By the time the permits are gathered, the hearings are done, and the go-ahead comes in, the price crashes again. It just keeps the problem the way it is.
I would love to work steadily until retirement--that might make retirement possible, as opposed to using up savings to keep the lights on when the industry goes dead in the water for a year or two.
I get by, and have worked at a lot of interesting sideline jobs, from construction work to calling bingo, to dealing blackjack in a titty bar.
You manage, especially when there are kids to feed, and now we are raising grandchildren...
Yes, it would be in our country's best interest to have the means to be energy self sufficient developed, but frankly, that would not be happening if gas was still only a dollar a gallon.
Completely true. The best cure for high prices is high prices. It really does take a bite out of you before it levels out, though.
Amen brother, it is never a question of will it crash again, but only when.
May suggest a couple references:
Consumer Price Index, Average Price Data
Choose US City Average, then Gasoline - unleaded regular.
If your point is fuel is spuring some inflation causing strife, you have made your point, one which no one dissagrees with.
If your point is that fuel is not governed by the normal rules of capitalism and fuel companies are evil because they make a profit, you are liberal moron.
Either way the conversation has served it purpose.
The left wing mindset does not understand or care to understand.
They want "it" now. They is no future for the left in their mind.
Thus they do not think about inventory replacment. They only see ONE pie. They can't grasp the fact they we can make MORE pies.
"I do want to see an alternative that competes with oil become widely available, however."
So do I. Do you know much about biodiesel? That is one that really sounds intresting to me, converting garbage into useful product.
And there are many around here who are clueless. It's a good thing they've never tried to run their own business.
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