# Gas Jumps 10 Cents: Define Price Gouging? **URL:** \ **Category:** Factual Questions\ **Created:** [May 17, 2004, 10:10am UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564 "2004-05-17T10:10:23Z")\ **Posts on this page:** 6\ **Page:** 3
**Author:** ![Crafter\_Man](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crafter_man/32/458_2.png) [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)\ **Post date:** [May 19, 2004, 12:55pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/41 "2004-05-19T12:55:24Z")
> [@Ringo](#): > > That’s got to be one of the more absurd notions I’ve run across during this (_long_) fight against ignorance. It never ceases to amaze me, **Ringo**. A couple times a month someone in GQ will ask, “Why is such-n-such so expensive?” Eventually someone will give the correct answer: **supply and demand**. But then – and this happens _every_ time – someone will claim “supply and demand does apply in this particular case” or “supply and demand is a myth.” They may as well be claiming the sun goes around the earth… ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [May 19, 2004, 1:26pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/42 "2004-05-19T13:26:16Z")
> [@Voluble](#): > > instead of waiting on profit figures. High profits are to be expected when demand is high. If you are making a penny a gallon and then sell two gallons instead of your usual one then your profits double…right? Plus when there is uncertaintly over supply and demand there is a risk premium involved as I referenced in another post. Thus your method for determining “gouging” is insufficient to the task. Maybe you should keep going to class until the end of the semester so you can learn about elasticity. Gasoline demand is pretty constant so your example has nothing to do with reality. If anything, the higher price would cause **fewer** sales. Here’s a better example. I make a penny profit per gallon at a certain price. A few weeks later, the price increases due to decreases in supply. I still sell the same number of gallons as before, but now my profit has increased to two pennies per gallon. The issue here is that the costs of gasoline are fairly fixed between stations. Crude costs the same for everyone, refining costs are pretty much the same for everyone so the basic price for gasoline is pretty much going to be the same for everyone. A decrease in supply is going to affect everyone the same way, so it’s natural everyone’s costs are going to be about the same in a given area - hence equality in prices. ---
**Author:** ![OxyMoron](https://avatars.discourse-cdn.com/v4/letter/o/e9a140/32.png) [@OxyMoron](https://boards.straightdope.com/u/OxyMoron)\ **Post date:** [May 19, 2004, 2:14pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/43 "2004-05-19T14:14:19Z")
Neurotik, do you have cites for _any_ of these assertions? It would seem to me that, in fact, demand for gas _is_ rather elastic. Anyone who lived through the oil crises of the seventies (I was a kid, but I remember) knows that people _can_ reduce their demand when properly incentivized - e.g., by higher prices. (In fact, isn’t this the point of your example?) Conversely, in a free market sellers take advantage of such inelasticity as arises, which is often temporary: as has been noted, gas prices rise before Memorial Day because in much of the country, school’s out and families start driving holidays. So of course there’s a spike in prices, anticipating increased demand and reduced elasticity. This is no different from the fact that airlines raise their ticket prices for the Thanksgiving and Christmas seasons, and that Amtrak raises _its_ prices on Fridays and Sundays. I’m especially interested in cites you may have for these: > [@Neurotik](#): > > The issue here is that the costs of gasoline are fairly fixed between stations. Crude costs the same for everyone, refining costs are pretty much the same for everyone so the basic price for gasoline is pretty much going to be the same for everyone. > > A decrease in supply is going to affect everyone the same way, so it’s natural everyone’s costs are going to be about the same in a given area - hence equality in prices. ---
**Author:** ![biqu](https://avatars.discourse-cdn.com/v4/letter/b/7feea3/32.png) [@biqu](https://boards.straightdope.com/u/biqu)\ **Post date:** [May 19, 2004, 2:31pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/44 "2004-05-19T14:31:49Z")
> [@OxyMoron](#): > > Neurotik, do you have cites for _any_ of these assertions? It would seem to me that, in fact, demand for gas _is_ rather elastic. Anyone who lived through the oil crises of the seventies (I was a kid, but I remember) knows that people _can_ reduce their demand when properly incentivized - e.g., by higher prices. In the short run at least, demand for gas is rather inelastic, since people still have to drive their cars to work, and run errands that can’t be done on foot. (Witness the posts of **blowero** and **enipla** in the GD thread “benefits of high gas prices”. For a non-anecdotal citation, follow the link in my first post to this thread.) In the long run, motorists can choose to move to a home closer to their jobs, or buy smaller vehicles with better fuel efficiency, or arrange to carpool with co-workers, so in the long run, demand for gas is elastic, as you noted from your experience with the prolonged oil crises of the seventies. ---
**Author:** ![Crafter\_Man](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crafter_man/32/458_2.png) [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)\ **Post date:** [May 19, 2004, 2:51pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/45 "2004-05-19T14:51:23Z")
There’s no such thing as “perfectly elastic” or “perfectly inelastic” demand. Demand for a given good is always somewhere between these two extremes. The demand for gas is fairly inelastic. But not “perfectly inelastic”, of course. When the price goes up – even by five cents a gallon – overall demand will go down, even if by a slight amount. ---
**Author:** ![Neurotik](https://avatars.discourse-cdn.com/v4/letter/n/91b2a8/32.png) [@Neurotik](https://boards.straightdope.com/u/Neurotik)\ **Post date:** [May 19, 2004, 5:53pm UTC](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564/46 "2004-05-19T17:53:51Z")
> [@OxyMoron](#): > > Neurotik, do you have cites for _any_ of these assertions? It would seem to me that, in fact, demand for gas _is_ rather elastic. Anyone who lived through the oil crises of the seventies (I was a kid, but I remember) knows that people _can_ reduce their demand when properly incentivized - e.g., by higher prices. (In fact, isn’t this the point of your example?) Everything’s elastic to some extent, but gas is certainly not “rather elastic.” Filet Mignon is rather elastic, to give an example. Gasoline is, of course, not perfectly inelastic. But in terms of most other consumer goods, there are few things that are more inelastic, especially in the short term. Let’s face it, for most people the car is their only means of transportation. If the price of gas goes up $5.00 per gallon next week you’re pretty much stuck as to your options (unless you’re close enough to ride a bike or live in an area with public transport). You have to pay. As for a cite: > [@](#): > > In regard to price, gasoline is inelastic. Inelasticity means that increases in price will result in decreases in usage but the decrease will be too small to affect profits. > > In economic usage, ratings below 1 are considered inelastic while ratings above 1 are considered elastic. For instance: In the inelastic category, food is 4, tobacco .45, and gasoline is .2; In the above 1 category, restaurant meals are 2.3 and electricity 1.3. > > Gasoline and fuel oil are only inelastic in the short term. In the long term, better insulation in new homes, increased insulation in many older homes, more energy efficiency in industrial processes, and automobiles with higher mileage all decrease usage. However, even when these are accomplished short term inelasticity persists. [http://www.etherzone.com/2004/cron051304.shtml](http://www.etherzone.com/2004/cron051304.shtml) [Another one:](http://216.239.51.104/search?q=cache:3O2TJyrlDxUJ:cyberlaw.stanford.edu/blogs/cooper/archives/mccaingasoline.doc+gasoline+inelasticity+of+demand&hl=en) > [@](#): > > The result of the underlying socioeconomic determinants of automobile travel is to render demand inelastic. The low elasticity of demand is the critical factor in rendering the gasoline market volatile and vulnerable to abuse. When demand is inelastic, consumers are vulnerable to price increases, since they cannot cut back on or find substitutes for their use of the commodity. When the most important market force in disciplining market power, demand elasticity, is as low as observed for gasoline, there are many opportunities to exercise market power. > [@OxyMoron](#): > > Conversely, in a free market sellers take advantage of such inelasticity as arises, which is often temporary: as has been noted, gas prices rise before Memorial Day because in much of the country, school’s out and families start driving holidays. So of course there’s a spike in prices, anticipating increased demand and reduced elasticity. This is no different from the fact that airlines raise their ticket prices for the Thanksgiving and Christmas seasons, and that Amtrak raises _its_ prices on Fridays and Sundays. Right. I don’t disagree. > [@](#): > > I’m especially interested in cites you may have for these: OK. > [@](#): > > Crude costs the same for everyone, refining costs are pretty much the same for everyone so the basic price for gasoline is pretty much going to be the same for everyone. Do I need a cite for the fact that crude oil costs pretty much the same for all of the oil companies since it’s priced at the international level? Another major cost would be taxes - these too would be the same for every retailer in the area. Agreed? For refining costs, I have no idea, but I can’t imagine there’s much of a difference in the processes used by the different oil companies, so I’m imagining there’s not much difference in the costs of refining. But I could be wrong. I stand by my assertion that most of the costs to gasoline retailers in the area are about the same, hence the likelihood that most of the retail prices are going to be about the same for the major companies in a given area. [Previous page](https://boards.straightdope.com/t/gas-jumps-10-cents-define-price-gouging/245564.md?page=2)