Math In Economics 4x6w6q

Running head: MATH IN ECONOMICS

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Math in Economics Kelly Kirby University of Phoenix Quantitative Reasoning for Business QRB 501 Jacob Simmons August 29, 2016 Math in Economics The price of a gallon of gasoline has been fluctuating up and down and then up again for the last 12 years or so. Although the consumer has been generally disappointed over the rising cost of a gallon of gasoline, there are many components which are involved in the composition of the cost of gas in the different areas of the states. The price of a barrel of oil averages about 63% of the average retail cost of a gallon of gasoline according to the Factors Affecting Gasoline Prices. Another factor that would affect the cost of gas would be the taxes involved; including federal and state taxes. Taxes for a total of around 14% affecting the price of gas. The remaining 23% of the cost is consists of the refinery costs, the profits, distribution of the product and finally marketing for the product. For the purpose of this assignment, I will look at gas prices

from ten different locations in the area in which I live, and will examine what causes the shifts in supply and demand and how these shifts generally influence the price of a gallon of gas. What is supply and demand? Supply is the perception that helps to define the total amount of product or services that are available to the consumer and is affected by oil production. Demand is defined as the quantity the consumers want to purchase. The basic rules of supply and demand have anticipated impact of the cost of a gallon of gasoline. If supplies are limited, the cost of gas will go up. If refineries are shut down due to weather, or natural disasters, production of crude oil will slow and will also impact the cost of gas to the consumer. The population explosion over the last several decades has also impacted the demand for more gas to be produced, especially during busy travel seasons. So supply and demand work in unison to determine gas costs. Gas stations are a business, and a business needs to make a profit in order to remain in business. As gasoline prices increase and taxes remain high on a gallon of gas, the business in turn will suffer due to these elements. To counter these damaging elements, most gas stations in my area have also built convenience stores to around the station to supplement the income of the business. These stores help to broaden the market to help absorb any losses the business may incur due to the rising cost of oil. After driving through the area I noticed that the trend of gas prices around my neighborhood was significantly lower than the United States average of $2.21 gallon. This of course is for the lowest grade of gas. The standard deviation for the national average is minimal. In my area, the lowest gas price I could find was a few miles away in Myrtle Beach at the Costco store. The price here was $1.84 per gallon. The Circle K gas station a few minutes down the road had a gas price of $1.87 per gallon as well as the BP station across the street. Traveling down

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Highway 501 to the Coastal Petro station, the price climbed to $2.05 per gallon, but the Shell Station on George Bishop Parkway only .5 miles from the Coastal station, the price dropped to $1.99 per gallon. Once I was back on Highway 90 heading home I ed a Mobil station where the price of a gallon of gas costs $2.01, with a Hess Station on the other side of road sporting a price of 2.02 per gallon. The Kroger I ed had a price of 1.88 and another Circle K station in North Myrtle Beach with a price of $1.85 per gallon. My final stop was a place called Liberty gas where a gallon of gas cost $1.95. SO the average price of gas for my area is around $1.93. Elasticity can reveal to how strongly the quantities which are being supplied and those in high demand respond to varying factors including price and other elements. Understanding and utilizing how strongly the quantity which is demanded or supplied will change pricing can be very useful information to a business. For the consumers, the biggest decision is what type of vehicle fall under the affordable range but still will afford the same standards. The substitution effect of a price change will measure the extent to which consumers buy less goods or services in response to an increase in its price relative to other goods and services (Keown, Arthur, John Martin, J. Petty. 2013). The higher the price elasticity, the more sensitive consumers become to price changes. If the gas has a high elasticity, this may suggest that when the price increases, consumers will tend to purchase less which causes an increase in supply. When the price of the gasoline goes down, consumers will spend more and decrease the supply. Having a good with a low price elasticity would mean just the opposite, that changes in price will have minimal influence on demand.

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References Library Economics and Liberty. (2016). Retrieved from http://www.econlib.org/library/Topics/College/supplyanddemand.html Keown, Arthur J., John Martin, J. Petty. (2013). Foundations of Finance (8th ed.). Pearson Learning Solutions Factors Affecting Gasoline Prices. (2016). Retrieved from  http://www.eia.gov/energyexplained/index.cfm?page=gasoline_factors_affecting_prices

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