Can you describe how prices of gasoline &other oil products like diesel&heating oil are set by *free markets*?

This is a Q in microeconomics and it relates to understanding how and why we are paying about 3.00$/gallon across America.Can you describe how prices of gasoline %26amp;other oil products like diesel%26amp;heating oil are set by *free markets*?
low supply, increasing demand --%26gt; high price





but im not so sure that a cartel is a functioning ';free market'; since supply can be aritificially controledCan you describe how prices of gasoline %26amp;other oil products like diesel%26amp;heating oil are set by *free markets*?
Supply in demand. The demand goes up and the supply goes down the price goes up.
They cut back production demand goes up as well as prices.
You're kidding, right? Understanding pricing of oil and oil products is way beyond the scope of an undergraduate Econ program. Oil and oil products have two features that set them apart from most other goods: (1) they require substantial (and irreversible) investments into development and refining, and (2) they are storable (i.e., not perishable).





The former means two things: (1) the short-run elasticity of supply depends on capacity utilization (the lower the utilization, the higher the elasticity), and (2) at high capacity utilization, the long-run elasticity of supply is likely to be drastically different from the short-run elasticity.





The latter means that to understand the behavior of oil prices, understanding consumer behavior and producer behavior is not enough; you have to also understand (and explicitly model) speculator behavior (stockpiling during perionds of rising prices and drawing on stockpiles during periods of falling prices).





For a comprehensive treatment of the problem, see Fridrik M. Baldursson, ';Modelling the price of industrial commodities,'; Economic Modelling, Volume 16, Issue 3, 3 August 1999, Pages 331-353.
its all about the laws of supply and demand my little student friend
Tey are not set by the market...





The Oil companies have turned in record PROFITS for the last year.


They don't get that from the market they get that from your pocket.
A ';free market'; means that whoever controls the market is free to do whatever he wants. A true free market would be chaos, which naturally ends in dictatorship, which is what we have if we listen to the preachers glorifying what they pretend is a free market. Status quo, ';whatever is, is right,'; is what these whores are really trying to push by claiming that whoever is on top must have gotten there through fair competition.
Simply put, the price of gasoline is the exact point where consumer demand coincides with supply. In other words, the price of gasoline will never rise above what consumers are willing to pay. If an Oil company has 50 gallons of gasoline, and at a price of $2/gal, 60 gallons are demanded, the company will raise prices. Say they raise it to $3/gal and only 40 gallons are sold. The equilibrium price is therefore somewhere between $2 and $3. That is how price is set, and it is wise to remember that before you complain about ';gouging';. No one is forcing you to purchase that gasoline; you have therefore decided that paying $2.90 for a gallon of gas is better than the alternative- having no gas at all. That is the free market at work.