Why Are Gas Prices So High?

Rising gas prices fuel public outrage, and the popular explanation is that unscrupulous oil companies are taking advantage of helpless consumers. This makes a good story but, as Professor Art Carden explains, it’s not accurate. Instead, gas prices can be explained by the laws of supply and demand. Supply shifts occur when it becomes easier or more difficult to bring oil to the market.

So what about exorbitant oil company profits? Profits and losses send important signals to the market, attract entry to a market, and ensure resources are allocated effectively. They also can encourage more research and development in alternative energies. Taxing or otherwise curtailing oil industry profits will actually reduce those key market signals and won’t lead to any reduction in prices at the pump.

Many of the barriers to entry in the market are actually the result of political problems. Gas prices would be lower if there weren’t barriers to drilling for new sources and barriers to the development of new energy, like nuclear power. They would also be lower if demand were not artificially increased through war and other wasteful expenditures.

12 Comments

  1. Matt Wavle

    And there are thousands of ridiculous regulations hampering business, and increasing the cost while at the same time adding no value at all.  Regulations ought to be considered as damaging as The Broken Window.

  2. Nick Picini

    This is very accurate, especially in the school system. We’re taught that iron triangles and issue networks are the fault of the free market. It is scary. 

  3. taschrant

    Government interventions always make the general public worse off.  Get rid of crony capitalism and separate the state from economy.

  4. Lukas Koube

    yup, its a simple story….but you should also add that international consumption goes up as other countries develop. i bet you go into this on another video! you rock!

  5. Lukas Koube

    also, i wonder how other countries influence american gas…i hear gas is far more expensive in the EU..what are the specific regulations that cause this?

  6. Lukas Koube

    how does the points system work? i would love to read about it somewhere, it is really confusing. 

Add Comment Register



Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

    LearnLiberty_Banner (1)