Econ 101

I don't know about you, but I'm tired of hearing otherwise smart people say that gas prices are so high because of "greed" and "price gouging". This reflects complete ignorance of more than 100 years of economic science and defies common sense. Have companies suddenly become greedier in the last several months? Were they not so greedy last year? No, they were greedy last year and they're greedy now. Companies always want to charge sky-high prices. Consumers always want to get dirt-cheap prices. Actual prices are determined through supply and demand. If the supply of something decreases and/or the demand increases, its price will tend to increase. Even the most greediest of companies will be forced to cut the price of its product, if the overall supply of the good consistently increases and/or demand decreases.

This is why it should be no surprise that gas prices have fallen on average by 20 cents a gallon in the last two weeks. In the wake of disaster, decreased supply and increased demand brought about higher prices. Those higher prices caused gas producers to manufacture and ship gas more quickly (increasing supply), while causing Americans everywhere to cut back on their gas guzzling to save money (decreasing demand). As a result, gas prices have fallen despite "corporate greed".

Supply and demand also explains why the cheapest place to buy gas is Baton Rouge ($2.57 a gallon) while the most expensive place is Honolulu ($3.23). Standard of living and state excise taxes may also play a role.