On average gas prices are higher in a City like Los Angeles than in New York...

On average gas prices are higher in a City like Los Angeles than in New York City. Why is this the case, considering that oil prices are international prices and there is not much difference in oil price as an international commodity in LA areas compared with New York?" What factors may impact this situation and what is it called in economics? Use your argument and suggest ideas and policies that can resolve this problem or at least reduce it.

Expert Solution

Gas prices are higher in Los Angeles than they are in Newyork. This means that same commodity is sold for different prices in two different states of America - Newyork and Los Angeles.

* In Economics, such a practice is called price discrimination. price discrimination refers to the practice of charging different prices for the same product to different consumers.

This become possible due the following factors.

* Sellers of oil possess monopoly power.

* Markets in Los Angeles and Newyork are seperated. If a buyer desires to go and buy from Newyork market, it's not practically possible due to the geographical seperation of Markets.

* Price elasticity of demand in the two markets is different.

In order to solve this problem, following measures can be adopted.

> One of the reason for price variation is difference between the laws and regulations concerned with the import and sale of oil.

> Adoption of a uniform tax system can solve this problem to a great extent.

> Charging different prices in different states should be considered as anti-competitive.

> Promote healthy competition.

Most importantly, we don't have to worry much as price discrimination isn't so severe.

> If it becomes a serious issue, we should bring it under the purview of Anti-sharman Act. The act assures that price discrimination illegal. Anyone who is practicing it violating the given instructions is bound to accept the punishment associated with it.

Rahul Sunny answered 8 months ago

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