PRICES Part two

It is important to understand that prices determine of how much of something will be bought and how much of it will be produced. In other words price effects supply and demand. The higher the price, the more of that good a producer wants to make because they can sell it for that high price and make a profit off of it. This also makes consumers demand less of it, thus preserving the good that has been produced for the people who want or need it the most.

Gas prices demonstrate this in an extroardinary way. Oil is sold on a world market and thus prices are set for oil based on the demand and supply of the world. The more the world demands something the higher the price will go. This is a good thing. The reason for it is that while prices rise, producers will make more to try and make that extra profit. When the supply then rises, prices will come back down. The other benefit is that when prices originally rise, people buy less and thus those who need it the most will have more available for them. Recently prices of gas have fallen quickly. After the recent hurricane, supply of gas was hurt because some of our refineries in Texas were disturbed by the hurricane. If the government stays out, prices will rise quickly enough so that only those who need the gas will buy it. I myself chose not to take a casual trip to Chattanooga because it would have cost me a dollar more per gallon. But prices rising in a time when supply is low or tight, is not such a bad thing. The man or woman who had to go to work on Saturday and Sunday and needed gas, would not have to worry about finding gas for sell. Some gas stations ran out of gas. If they had been free to and had raised their prices to what the price needed to be to curve demand, then they would not have ran out of gas to sell.

Recently the refineries are up and running at top speed and prices have fallen back down very quickly. We have also seen the economy sliding but not only here at home but world wide. This means that speculators or investors who buy oil on the world market expect demand to to be lower in the future. So they have bid the price of oil down because people are not going to be buying it as much nor will world economies be using as much gas to operate. Thus oil prices dropped. Within a few weeks that oil that is bought for cheap, gets refined into gas and when that gas gets to the gas station is is sold there for less than the older gas and thus gas stations can lower their prices. This is why prices have dropped so much. At the same time of our refining capacity getting back to normal, world demand for oil has dropped and thus prices drop considerably.

Some people complain about the profits of oil companies. Remember their profit per dollar of gas sold is less than $.10. This is a very low profit margin. It is a good thing that these companies make a lot of money because that means they can expand their company and produce more oil and supply will rise and thus prices will eventually go back down. The only problem is that our government currently restricts this from happening because liberals are held by the grip of extreme environmentalists. That means when the economy starts to grow again, prices for gas will rise again. We can keeps this from happening as quickly and as high, if we start drilling now. I'm afraid we won't though.