How are gas rates around the country calculated?

Answer 1

It may sound like a cop-out answer, but supply and demand determine how much gas rates are around the country. Thus, the price of gas can fluctuate depending on the region of the country you are in, because supply may be higher there.

Gas is produced from oil, so if the supply of oil tightens, gasoline supplies will also fall. If we assume that demand for gasoline is constant (which is not necessarily a bad assumption, since gasoline is something that most people will buy in about the same quantity whether the price is 2.25 or 2.75) then supply is what causes the price to fluctuate up and down. Lower supplies mean that the supply curve shifts upward, which lowers the amount of gasoline that will be purchased (albeit very little, as demand is nearly vertical), and price will increase.

With a near vertical demand, one would wonder why the price doesn't go up even higher. The answer to that is competition. If I charge $6 a gallon, but your gas station down the street will accept a lower profit and only charge $3, people will go to your station. Thus, I have an incentive to keep my prices competitive, even if it means accepting a lower price and thus profit. Regulations keep gas stations from colluding with each other in order to drive up the price artificially. Thus, supply is largely what determines gas prices.

Individual firms generally figure their rate this way. Cost of gasoline (transportation to get it there, wholesale price, etc.) + government tax on the gasoline + profit (generally, profit is between 1 and 2 cents per gallon). So you see, most of the money goes to the government and to the cost of gasoline. The gas station makes up for it in volume and in other services that it supplies, such as convenience stores.

Answer 2

I thought gas prices were determined by the owner of the gas station. What ever devices or equasions he uses is his choise, but he problably tries to follow what everyone else is doing.