The answer to these questions is Supply and Demand. Supply and demand is the basis of economics in a free market, capitalist society.
Demand refers to how much people want something or how much of that thing they want, in this case, gas. Is gas in demand? Of course it is! Here in the US we don't walk and, by and large, we don't take the bus. We drive! Look at any major gas station as you drive by. See the car their with their owners filling up their tanks? That's demand! But, there is a direct relationship between demand and price. The more they charge, the less we buy. So, why are we not buying less? Read on.
Supply represents how much of something that there is available, in this case, you got it, gas! How much gas is there for sale? With a good portion of our oil imported, the answer to this question is in the hands of foreigners. How much are they willing to provide? By controlling the supply, they control one half of the supply and demand equation. They tighten their supply and the price goes up. So how high is it going to go? Read on.
They control supply, but we control demand. Everything else being equal, the higher the price, the fewer the buyers. But wait, I still see lines of people buying gas every day. What's up with that?
Here's the bottom line.
A year ago the cost of a gallon of gas was about $2.50. Today it's almost $4.00. That's because people, you and me amigo, are willing to pay $4.00 a gallon. Where is that extra money coming from? We are reducing our purchases of other things in order to afford the increase in price of gas. So, where will it stop? When will it come down?
It will stop when we are no longer willing to forgo other purchases to afford gas. In my opinion, this price is currently $5.00 a gallon. Once it hits $5.00 you will see enough people say enough is enough and start walking, riding a bike, or taking the bus. At this point the price will come back down to just over $4.00 a gallon.
And that, I'm sorry to say, is where it will stay. After all, we're Americans. We don't walk, we don't ride the bus, we drive!
As a side note. Many people want to blame the oil companies or the middle eastern countries for the price at the pump. But, consider this. If you are selling something, wouldn't you want to sell for as much as you can? As long as we line up to pay, the price is not too high.
