Gas Prices Fact or Fiction: A Primer on Supply and Demand

by Tom Lehman

The recent upward spike in gasoline prices (particularly those following natural disasters) has unleashed a torrent of theories attempting to explain the pricing behavior in gasoline markets. From the Internet to television media pundits to the local newspaper editorial pages, and from political ideologues both left and right, it seems everyone has their pet theory about the rising price of petrol.

In an attempt to clear up some of the most erroneous ideas and to bring sound economic analysis to bear on the issue, it seems only appropriate to play a bit of "gasoline price fact or fiction" with our old friends, supply and demand.

(1) Gas prices are controlled entirely by wholesalers and big refinery oligopolists who illegally collude and profiteer at consumer expense. Fiction.

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http://www.mises.org/story/1936