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#2
05-14-2006, 07:33 PM
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Re: Gas Economics Questions
Your hypothesis would seem to constrain the possible answers:
"demand remains the same", but "demand" is the amount consumed, therfore the answer to your first question is that the same amount is consumed. "dollar margins remain the same"...ie the unit profit is unchanged...costs and prices move in lockstep in either direction. but if the same amount is consumed, and the unit profit is unchanged, total profit is unchanged. 
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#3
05-14-2006, 07:51 PM
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Re: Gas Economics Questions
[ QUOTE ]
If supply diminishes, demand remains the same, and dollar margins remain the same, is more or less gas consumed? Are profits increased or decreased? Discuss. [/ QUOTE ] It depends. [img]/images/graemlins/wink.gif[/img] I don't know what you mean by dollar margins. Whatever you mean, it is not likely that anything will remain the same if supply decreases and demand is constant. As a general principle, if supply decreases and demand remain constant, the price will increase and consumption will decline. For all intents and purposes, gas supply right now is pretty much maxed out, and it is all being consumed. If supply decreased, it would still all be consumed, and the price would be higher. Profit levels would depend on a lot of factors. If supply was decreasing, it would be likely that the costs of production would be increasing. So profit margins would depend on whether costs were increasing more or less relative to the changes in prices.
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#4
05-14-2006, 08:01 PM
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Re: Gas Economics Questions
[ QUOTE ]
[ QUOTE ] If supply diminishes, demand remains the same, and dollar margins remain the same, is more or less gas consumed? Are profits increased or decreased? Discuss. [/ QUOTE ] It depends. [img]/images/graemlins/wink.gif[/img] I don't know what you mean by dollar margins. Whatever you mean, it is not likely that anything will remain the same if supply decreases and demand is constant. As a general principle, if supply decreases and demand remain constant, the price will increase and consumption will decline. For all intents and purposes, gas supply right now is pretty much maxed out, and it is all being consumed. If supply decreased, it would still all be consumed, and the price would be higher. Profit levels would depend on a lot of factors. If supply was decreasing, it would be likely that the costs of production would be increasing. So profit margins would depend on whether costs were increasing more or less relative to the changes in prices. [/ QUOTE ] Clarification: Dollar Margin is profit per unit sold (in $, not %). The second question about "profits" means Total $ profits (not per unit).
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#5
05-14-2006, 08:06 PM
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Re: Gas Economics Questions
[ QUOTE ]
[ QUOTE ] [ QUOTE ] If supply diminishes, demand remains the same, and dollar margins remain the same, is more or less gas consumed? Are profits increased or decreased? Discuss. [/ QUOTE ] It depends. [img]/images/graemlins/wink.gif[/img] I don't know what you mean by dollar margins. Whatever you mean, it is not likely that anything will remain the same if supply decreases and demand is constant. As a general principle, if supply decreases and demand remain constant, the price will increase and consumption will decline. For all intents and purposes, gas supply right now is pretty much maxed out, and it is all being consumed. If supply decreased, it would still all be consumed, and the price would be higher. Profit levels would depend on a lot of factors. If supply was decreasing, it would be likely that the costs of production would be increasing. So profit margins would depend on whether costs were increasing more or less relative to the changes in prices. [/ QUOTE ] Clarification: Dollar Margin is profit per unit sold (in $, not %). The second question about "profits" means Total $ profits (not per unit). [/ QUOTE ] My response still stands..your hyptothesis only allows for one answer to each question.
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#6
05-14-2006, 09:05 PM
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Re: Gas Economics Questions
[ QUOTE ]
"demand remains the same", but "demand" is the amount consumed, therfore the answer to your first question is that the same amount is consumed. [/ QUOTE ] At the risk of being pedantic, demand is the relationship between price and quantity, not the amount consumed. Demand in conjunction with price gives the quantity consumed (quantity demanded). If demand remains constant and the price increases, then consumption (quantity demanded) decreases. Supply and demand are relationships between prices and quantities, not quantities or amounts. Quantities supplied and demanded are derived from those relationships.
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#7
05-14-2006, 09:15 PM
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Re: Gas Economics Questions
[ QUOTE ]
Clarification: Dollar Margin is profit per unit sold (in $, not %). The second question about "profits" means Total $ profits (not per unit). [/ QUOTE ] In a dynamic environment, there is no theoretical answer to the impact on profits. It all depends on the relative changes in costs, prices, and quantities. In general, if prices are increasing at a greater rate than costs are increasing, profits (both per unit and in aggregate) would be increasing. If costs are increasing at a faster rate than prices, profits per unit are decreasing, but you can't say what is happening to overall profits.
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#8
05-14-2006, 09:23 PM
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Re: Gas Economics Questions
[ QUOTE ]
[ QUOTE ] "demand remains the same", but "demand" is the amount consumed, therfore the answer to your first question is that the same amount is consumed. [/ QUOTE ] At the risk of being pedantic, demand is the relationship between price and quantity, not the amount consumed. Demand in conjunction with price gives the quantity consumed (quantity demanded). If demand remains constant and the price increases, then consumption (quantity demanded) decreases. Supply and demand are relationships between prices and quantities, not quantities or amounts. Quantities supplied and demanded are derived from those relationships. [/ QUOTE ] Forgive my inaccurate use of technical terms. You are correct that "demand" is academically expressed in value terms not quantity. Im just not sure that is the what the OP intended.
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#9
05-14-2006, 09:51 PM
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Re: Gas Economics Questions
[ QUOTE ]
Forgive my inaccurate use of technical terms. You are correct that "demand" is academically expressed in value terms not quantity. Im just not sure that is the what the OP intended. [/ QUOTE ] I'm not sure either, so we are all fumbling around trying to be helpful. Kind of like the government. [img]/images/graemlins/wink.gif[/img]
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#10
05-15-2006, 11:40 AM
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Re: Gas Economics Questions
Hey ptmusic: if supply deminishes and demand remains the same, then quantity falls and prices rise. If dollar profits per unit stay the same (let's call it 10 cents per gallon to be perfectly clear), then profits will drop.
But I'm going to be redundant here and point out the elephant in the room. Dollar profit per unit will not stay the same in this situation in an unregulated market (in fact, it will also generally shift in regulated markets). This is because money has a time value (is worth more now than later). Real world example: I'm a shipper. I was paying $1 to purchase and ship a gallon to market, which I sold at $1.10 for a ten cent profit. If my price rises to $2 per gallon, I can't go on taking a ten cent per gallon profit. My inventory cost has just doubled, so instead of having 10 billion dollars tied up in the oil inside Manpower-Valdez, I've got 20, and I'm now paying interest on considerably more money to keep the boats afloat. Since I need to cover this new cost, I must resell the oil at a price higher than $2.10 to maintain both my dollar level of profit as well as my percentage profit margins.
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