{"id":2139,"date":"2006-05-03T02:16:00","date_gmt":"2006-05-03T02:16:00","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/2006\/05\/03\/gas-prices-supply-and-demand\/"},"modified":"2021-03-29T02:26:07","modified_gmt":"2021-03-29T06:26:07","slug":"gas-prices-supply-and-demand","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/","title":{"rendered":"Gas Prices, Supply and Demand"},"content":{"rendered":"

Yes, I dislike the current gas prices as much as everyone else.<\/p>\n

Don\u2019t miss updates on Procurement & Supply Chain, Subscribe here!<\/a><\/p>\n

But I also think that we, as consumers, are every bit as responsible for them as the \u201cgreedy\u201d oil companies. And I don\u2019t really think that legislating extra taxes for these companies is fair.<\/p>\n

Let me explain\u2026<\/p>\n

Though this is common knowledge to those of us who have business degrees, we often fail to realize that most of the people in the country don\u2019t have business degrees. And thank god for that!<\/p>\n

Prices are determined by supply (the amount of something that is available) and demand (the amount of something that is needed). Companies will price their product to make the maximum amount possible.<\/p>\n

So why don\u2019t companies charge massive prices?<\/p>\n

Because higher prices will decrease demand for many things.<\/p>\n

Sure, you\u2019ll pay $12 for meals for two adults and two small children to eat at McDonald\u2019s. And you may eat there once every 6 weeks. But what if those same meals cost $50? Would you eat there as frequently? No!<\/p>\n

McDonald\u2019s knows how to price its products to make the most money.<\/p>\n

Now, let\u2019s take a look at gas prices.<\/p>\n

A gallon of gas used to cost about $2.19. Let\u2019s just say that at that price, an oil company sold (for the sake of simplicity) 1 million gallons of gas in a certain time increment. So they made $2.19 million in that increment.<\/p>\n

Then gas prices crept to $2.49. Consumers bought the same volume of gas. The oil company made $2.49 million \u2013 a $300,000 increase.<\/p>\n

Now gas prices are at $2.95 here in Pittsburgh. Consumers still haven\u2019t curtailed their consumption. So the oil company made $2.95 million \u2013 even more!<\/p>\n

So what is an oil company to do?<\/p>\n

They have a primary responsibility to their shareholders, so they are going to adjust the price until they find the \u201csweet spot\u201d \u2013 the point at which they maximize their revenue (actually their profits, but let\u2019s keep it simple).<\/p>\n

Sure, they hear complaining. But consumers\u2019 votes with their dollars (by continuing to buy the same amount of gas) measurably indicates to the oil companies that it is OK to continue to raise prices.<\/p>\n

So, if you want lower prices, you have to curtail your use of gasoline, plain and simple.<\/p>\n

If the oil companies found that raising prices from $2.49 to $2.95 would reduce consumption from 1,000,000 gallons per time increment to 500,000 gallons, here\u2019s what the difference would be\u2026<\/p>\n

$2.19 x 1,000,000 = $2,190,000<\/p>\n

$2.49 x 500,000 = $1,245,000<\/p>\n

The oil company would make more money by charging lower prices, so that\u2019s what they would do.<\/p>\n

Now, again, this is simplified because to do a true economic analysis you have to factor in costs, consider volatility in supply, and base the price point on profits not revenues, but the concept is the same:<\/p>\n

If you want lower gas prices, you have to commit to using less when prices are higher.<\/p>\n

If you keep paying high prices, there is no incentive for the oil companies to lower their prices. If you don\u2019t want to change your habits, don\u2019t complain!<\/p>\n

OK, back to CORPORATE procurement<\/a>\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

Yes, I dislike the current gas prices as much as […]<\/p>\n","protected":false},"author":12,"featured_media":4044,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2139","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\nGas Prices, Supply and Demand - Next Level Purchasing Association (NLPA)<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Gas Prices, Supply and Demand\" \/>\n<meta property=\"og:description\" content=\"Yes, I dislike the current gas prices as much as […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\" \/>\n<meta property=\"og:site_name\" content=\"Next Level Purchasing Association (NLPA)\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/NextLevelPurchasing\/\" \/>\n<meta property=\"article:published_time\" content=\"2006-05-03T02:16:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-03-29T06:26:07+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/11\/nlpa-images-054.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1600\" \/>\n\t<meta property=\"og:image:height\" content=\"1067\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Galo Matagay\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:site\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Galo Matagay\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\"},\"author\":{\"name\":\"Galo Matagay\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#\/schema\/person\/72d094fab77892483dfa6e061cb27eaa\"},\"headline\":\"Gas Prices, Supply and Demand\",\"datePublished\":\"2006-05-03T02:16:00+00:00\",\"dateModified\":\"2021-03-29T06:26:07+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\"},\"wordCount\":530,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#organization\"},\"articleSection\":[\"Procurement\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\",\"url\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/gas-prices-supply-and-demand\/\",\"name\":\"Gas Prices, Supply and Demand - 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