Tuesday, February 10, 2009

Why Do Gas Prices Rise Quickly and Fall Slowly?

When I ask this question, usually someone will tell me that the gas station owners are either colluding by raising prices quickly and slowly lowering prices or just plain greedy. A variant on this response is found here. My response is if this is true, then why do gasoline prices fall at all? Are gasoline owners only greedy or behave illegally some of the time? Any why would that be? I find this type of answer hard to believe, especially since there is another culprit that is giving an incentive to raise gasoline prices quickly and lower gasoline prices slowly - YOU (and me).

You may be thinking - hey I don't want gas prices to increase quickly and decrease slowly, and you are right, but your (and mine) behavior says just that. In class I will show you how.

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