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 ...
The other half of the equation is they still want to make a profit on the stuff they already bought. So if a business bought supply for $3 a unit and the price of units drops to $2 they're still going to keep the price above $3. It's not good enough to just replace stock, you need to recoup other costs (manpower, facilities), and turn a profit on every sale (unless the product is a loss leader).
I disagree. Most folks here are very well informed. And we learn more from each other a lot of the time. Though sometimes I get lost when the military guys sometimes sorta 'chat' amongst themselves and use acronyms that we (I) dopey civilians do not understand. LOL
Yes he does. I believe Walter E. Williams has a Phd in Economics.
They are hooked on the concept of gouging, which in actuality does not exist, and the bizarre conspiracy theories about "big oil".
Do you not understand the fundamentals of capitalism, and a free market economy? Or does Communism make more economic sense to you? Is 1-800-KARLMARX on your speed dial? Alfred Marshall and Adam Smith economic principles work better among free people.
Yes it does in a free market.
The oil companies paid DOUBLE in taxes in relationship to their net profits. These same TAXES are relected in the cost of the supplier to the price of a gallon of gas to the consumer.
I do not understand that so many folks (not you) do not understand simple logic and common sense.
And the cost per mile for fuel is even less when you look how mpg has changed. The average new passenger car is rated at 30 mpg in 2005; it was 15.9 in 1975.
You certainly do not believe in free enterprise and the private sector. Do you have a government job?
It was not a coffee "argument." It was an EXAMPLE. (shaking head and rolling eyes)
Dial 1-800-ENVIROMENTALIST and communicate your concerns.
True. But two points. The oil companies have not had record profits. Their ROI is less than most other industries. The ignorant unwashed shudder when they hear a corporate earnings number greater than their personal income. Further, those that may have investments in mutual funds are probably invested in the petroleum sector.
What was the rate of return on your investments last year? If you can figure that out, compare that to the rate of return from Exxon/Mobil or Chevron/Texaco.
Hey Prota. I've just been reading from the beginning of this thread. I retract my previous note to you. There ARE a lot of intelligence-deprived people here.
Yes, and to be redundant, yes.
Oh, I agree, totally - but it was a modification of my normal advice to the moaners ... "If you don't own an oil well, get one."
I took it down a notch and advocated for a stock purchase, instead. Same people would *not* be saying a word about "record profits," but, of course, they'd be whining about how little profit their oil companies made.
true the government makes more on gas taxes than the oil companies make in profits....
http://www.taxfoundation.org/publications/show/1139.html
Table 1. State and Federal Gasoline Taxes Compared to Major U.S. Oil Companies’ Domestic Profits, 1977-2004
(figures in billions of 2004 dollars)
Total
Oil Profits $643.0
Federal Taxes $533.0
State Taxes $810.1
Total Taxes $1,343.1
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