Quote:
Originally posted by fabsroman
I kind of understand the inelastic demand curve, but isn't competition supposed to have a little impact on it. Also, even if demand is inelastic, there is always supply side.
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I am not an economist and I did not stay in a Holiday Inn Express last night, but I think the point is that where demand is inelastic, there is little incentive to engage in price competition. If you can sell all of a product that it is possible for you to sell at a given price, what is the incentive for you to lower your price?
Once gas prices reach the point that people change their behavior, them we will see some marginal price competiton.
Part of the reason for the higer gas prices is also refinery capacity. As I understand it our refinerys are pretty well oeprating their maximum capacity. Add to that the fact that we have not built any new refineries in some period of time. And BP just had one go offline recently down in Texas (it blew up). I think what you are seeing is a more restircted supply than usual.
It will be interesting to see what happnes over the next three weeks. Prices will probably continue to go up through Labor Day. Then we may see prices level off or decrease.