Gasoline prices are rising. There seems to be no end to the almost daily increases. At week end, the average US price of a gallon of regular gasoline was almost $4.00. For many, this is an ugly slap in the face. For others, it is another sign of the vanishing American dream.
There are some important lessons, however, wrapped up in this situation.
First, most of us do not have a clue how the price of gasoline is established in the first place. We show up at the gas station and there is a price on the machine. Pay it or go without. But, how did it get so high?
We are told that the price of gasoline is rising, due to this reason or that. The simplest answer is to look at oil prices. The higher oil prices rise, voila, higher gasoline prices go. While this is basically true there is much more to the story.
For example, supply and demand can explain rising oil prices. Oil producing countries deliberately determine how much oil is available. Co...