Question

Let's look at the price of gasoline. What affects its price and how does that affect the sales of this product? If the price went up or down would that affect demand?

Answer 1

What affects the price of Gasoline -

1. The price on which the crude oil is being sold by the country which is extracting the crude oil. There are very few countries around the globe where oil can be extracted. Hence, the competition is the one which decides the prices.

2. The political relationships between two countries, supplier and buyer. If the political relations go wrong, the duties and taxes would be increased which will lead to increase the price of gasoline in the buying country.

3. Refining costs and profits is another major factor which affects the price of the refined oil or gasoline.

4. Any natural disaster, war or adverse situation to the supplier country or the globe will directly affect the prices of the crude oil. Hence, there will be a direct impact on the prices of the gasoline.

Effect on sales -

1. If a disaster hits the countries or war is started, it will significantly drop down the demand of fuel in that country, and it doesn't matter what are the prices of the gasoline for the end consumer at that time.

2. Small fluctuations in tha prices of fuel to the end consumer will not impact the demand of the fuel in any country as it is an essential commodity.

3. Any political situation between the countries will not allow the end consumers to boycott the gasoline as it is essential to customers. Hence, there is no impact on demand of the fuel if the prices go high.

4. If the prices go down, the demand will increase as it is a commodity everyone uses.