The Economic Factors Involved with the Rising Price of Gasoline Essay

The Economic Factors Involved with the Rising Price of Gasoline The year 2004 has seen a steady climb in the price of gasoline. From January of 2004 to May of 2004 there has been a jump of approximately .50 cents a gallon (Energy Information Administration). For many Americans high gas prices have been a hot issue with them, and there seems to be no rhyme or reason to these fluctuations. With the continued popularity of the sport-utility vehicle and the high volume of gasoline it requires, the issue of high gas prices doesn’t seem to be going away anytime soon. Many factors go into determining the price of gasoline. This paper will explore the various factors involved to determine the price of gas and attempt to gain a better understanding on how it arrives at its decision. The gasoline industry is an oligopoly. In Mark Hirschey’s book called Fundamentals of Managerial Economics an oligopoly is defined as, â€Å"A market structure characterized by few sellers and interdependent price/ output decisions†. This market structure only allows a few large rivals to produce the majority of the industry’s output (404). The oligopoly controlling the gasoline industry is the Organization of the Petroleum Exporting Countries (OPEC). OPEC consists of 11 oil producing countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, and Nigeria (OPEC.org). These countries control gas prices by the amount of crude oil they produce. To gain a better understanding of how the United States gets its gasoline and who supplies it, we will have to take a closer look at the degree of competition. Because of the nature... ...uly 2004.Website. 6 Dec.2002. www.bradynet.com/bbs/russia/100226-0.html> Bonsor, Kevin. â€Å"How Gas Prices Work.† HowStuffWorks. 30 June 2004 Website. 29 June 2004 http://money.howstuffworks.com/gas-price.htm/printable â€Å"Strategic Petroleum Reserve-Profile† Office of Fossil Energy 1 July , 2004. Website. 1 July 2004 Mitchell, Andrew and Oweis, Khaled, Reuters â€Å"OPEC Prepares Oil; Deal to End $40 crude Prices.† AOL Business News. 3 June 2004 Website. 3 June 2004 http://aolsvc.news.aol.com/business/article.adp?id=200406020883009990015&_mp... Lott, Trent. â€Å"A $100 Fill-Up?† Truth News 30 June 2004 Website 28 May 2004 http://truthnews.com/world/2004050143.htm â€Å"US Fuel Tax Rates By State.† ClevelandGasPrices. 28 June 2004 Website.