business economics article
INTRO:
Edgar really wants to review the company of starting a new gas station. He must consider the expenses of working it as well as the possible profits he can attain. This will help to realize profits predicted. A positive predicted profit is going to imply a thumbs up to the new enterprise.
RELEVANT INFORMATION:
The article lets us know the gas prices are expected to feel a high of $4. In addition, it states that this high price features forced buyers to squash non-gas spending and even minimize gas intake.
. ‘the hike at the pump is beginning push individuals off the road’. So we now have rising rates and suffering consumption. Therefore lower expenditures by individuals who implies lower revenues to get gas place owners.
The article also brings up irregular supplies that can wreak havoc with short run supplies. Although high level of inventories are expected to keep prices lower than predicted due to supply problems.
Thus we have a predicament here large prices cause lower revenues due to reduced consumption levels.
This is seen in kept shift popular for gas. Larger sizes and excessive inventories will certainly affect supplies- the supply curve may move to right/ remain secure. Both conditions imply lower prices for gas, and more unstable revenues stream.
However the with regard to gas can be inelastic as a result of nature with the good on its own. This could signify revenues do not dip since prices rise. However the prices of gas are very risky, as observed in the past. This kind of volatility is not a good indication for a stable revenue stream. Also the inelasticity is usually coming under scrutiny as research show people changing all their habits and lifestyle to lower consumption, producing demand more supple than expected. An flexible demand can be not good for organization.
RECOMMENDATION:
I would not recommend Edgar to get started on a new gas station. It is because of high level of uncertainty associated with supply of gas that determines its price as well as changing lifestyles and preferences which make demand more elastic.
The figure shows dropping prices with decline popular and abounding inventories. Since lower prices lead to lower profits when require is elastic, we anticipate lower revenue as well. The volatility in prices and so, revenues in another source of matter.
REFERENCE:
Lin, Cynthia, and Lea Knight in shining armor b. “Gasoline Price Movements and the Elasticity of Demand for Gasoline1. ” Department of Agricultural and Resource Economics University of California, Davis, California. Net. 13 March. 2014. < http://www.des.ucdavis.edu/faculty/Lin/gas_price_volatility_paper.pdf>.
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