Location: Halstead, Kansas, United States

This is my seventh year at Halstead which is also where I live with my wife and my soon to be two year old daughter.

Friday, August 13, 2004

Are Gas Prices to High?

Mr. Gerber and me have had a continued conversation on gas prices throughout the past year and more and more people have refered to price gouging. I thought this article by Edward Lottermann made some interesting points such as:

The term "price gouging" is suddenly in vogue among politicians and news announcers because of the recent run-up in gasoline prices in the Midwest. But what exactly constitutes "gouging?" Consider the following cases: Paying $12 for two thin slices of cold greasy pizza and two small Cokes in an airport departure concourse. My neighbors selling a house for eight times what they had paid for it years ago. Twin Cities apartments renting for $150 more per month than a year ago. Me charging $200 per hour as an consulting expert in a legal case when I get less than $50 per hour teaching at Metro State University. In a market economy, prices frequently seem unfair to buyers. But whenever anyone has something to sell, they try to get as much for it as possible, whether it is their labor, a used car, a house or items on a garage sale. That is human nature.

This brings me to the question of: When are government price controls okay? Provide examples or or views.


Blogger Mr. Warsnak said...

This is an example of a comment posted. I will point out that I think the government should avoid all price controls except when the public is acting irrationally. for instance, after hurricane Charley hit Florida.

9:34 PM  
Blogger Doc said...

I agree with Mr.Warsnak, but what I only noticed that gas prices after 9/11 which is what actually caused the gas prices to go up any ways right?

But here is something I just thought of.

Do our armies planes and various army vehicles have to use America's gas or the Iraq's gas? I mean if our army vehicles used our gas that would cause gas prices to go up, right??? Well I don't know just thought it would be interesting.

5:00 PM  
Blogger Mr. Warsnak said...

Your on the right track thinking about the increased demand of armies using oil (especially ships and planes) causing the price of gas to increase.

What other factors might increase the demand for gasoline?

also, What factors might decrease the supply of gasoline that could also raise the price of gasoline?

8:24 PM  
Blogger Casey Jack said...

Although I wouldn't have any ideas on the repercussions of government price controls on gas, I think that price controls could be well used in other situations. One such situation I can think of would be in the case of a monopoly overcharging for their products. Unless I'm mistaken, there are already laws in place to prevent such monopolistic practices. But as for gas, I think that right now it should be left to be decided between the vendors and consumers. People who sell gasoline will have to find the delicate balance between profit and acceptable pricing. Consumers will determine what is acceptable pricing by purchasing gas at prices they deem reasonable. Although I an certainly not a fan of the price increases, I do realize that supply is getting harder and harder to come by at low prices, and that translates back into higher prices back at home. All I can do is wait and see if matters will be resolved.

Or we can drill in Alaska!

9:03 PM  
Blogger Mr. Warsnak said...

Your comment on drilling in Alaska is interesting because it opens up the idea of trying to find either new supplies. I might also bring up the idea of alternative fuels or even better the idea of hybrid vehicles.

You are also correct on the idea of government regulation of monopolies. Can anyone give an example of a monopoly that government has price controls in place for?

9:51 PM  
Blogger Doc said...

Wow Jack... good comment I kinda feel odd and out of place now but oh well, also another idea has just hit me.

Since we are making hybrid cars that will begin running on electricity and various other fuels doesnt that mean less and less people will be buying gas? Maybe the major gas companies saw that coming and are trying to make some extra cash before gas isnt used for the major transporation industry.

10:23 PM  
Blogger Casey Jack said...

I bet that the car companies did foresee that one. There are scientists nowadays that are predicting that the Earth will run out of the majority of its oil within the next 50 years or so. So I bet that they are trying to get a head start on any possible shortage.

I'm guessing that the reason why we don't have fully electric cars yet is either a) The car companies are trying to gradually introduce electricity into the market, and a hybrid is a stepping stone to do that; or b) Some people (or places) wouldn't have the resources right now to have everyone draining power for their cars. Think of all of the power problems California is having right now, and then imagine what it would be like with everyone running their cars off electricity! Yikes.

Perhaps when our nuclear physicists discover the secret to unlocking the power of fission energy, we won't have to worry about electrical shortages. Only time can tell.

7:44 PM  
Blogger Corey Wells said...

I also agree with the spiked prices due to the conversion to alternate energy sources. I think it could be a while for the transfer to actually take place completly. Along the lines that Jack said, many places other than california will have struggles providing the sufficient energy needed to operate and manuever the vehicles.

8:19 PM  
Blogger Mr. Warsnak said...

Pat and Casey I have to disagree that the oil companies are raising prices because they see that future demand is going to drop and thereby they need to make all the money they can now.

Think about this: If the main goal of a company is to earn a profit they will charge the price where they are able to maximize their profits. This usually means that they will charge the highest possible price while still being able to get people to buy.

Your argument hinges on the crux that the oil companies have traditionally charged a lower price for no particular reason. Why wouldn't they always charge the higher price?

Also, keep in mind that a pact between compaines within a market to not engage in competition (agreeing to raise prices) is known as collusion and is HIGHLY illegal.

You both make interesting insights and I hope you will think about taking my Economics class in the future. We often discuss these issues and try to figure them out together.

Mr. Warsnak

PS Casey I will point out that gas prices are an excellent example of multiple causation

8:25 PM  

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