Everyone knows that gasoline prices are a “driving” force in the U. S. economy.
What they may not know is how these prices are determined and why they change so often.
Back in the 1990's when things were humming along and the economy was in good shape, the gasoline prices were fairly low. So everyone said, oh, I need a bigger car to haul all this stuff I have around to soccer games, football games, dance classes and the grocery store. So they started buying SUV's, Hummers and other gas guzzlers which only got 5 miles to the gallon.
But now, the law of supply and demand took over. In this case, it was the oil producers and the gasoline user. The producers said, wow, look at all the oil we are selling, maybe we should increase the price in order to make more money. So they did. This made the price of gasoline go up. But then, the price of gas approached $4.00 per gallon. The gasoline user said, oh-oh, I can't afford this, maybe I had better park my SUV and get a more efficient car to drive. So a lot of them did. Then a funny thing happened, as the usage of gas went down, the producers said, gee, we had better lower the price of oil in order to sell more, and they did.
As a result, the price of gasoline went down. However, it will not get as low as it was back then because there are a lot more users now. Emerging countries such as India and China are using more oil and gasoline than they were and so that will keep the demand up. Also, now OPEC has cut oil production and that will keep the price higher.
The market for all commodities operates in the same way. If you make a good product that everyone wants, you may get more money for it. The problem is, how this can be accomplished with the resources at hand.
