You might think that gas prices would rise as the United States wages war near the Middle East. You would be wrong. In the past two weeks, fuel prices have tanked, thanks to, oddly enough, a possible imminent recession.
The average price of gasoline nationwide is $1.25, down over 20 cents from a month ago, according to the AAA automobile club. The explanation for the sudden drop in gas prices is simple supply and demand. After the Sept. 11 terrorist attacks, Americans are putting less cars on the road and less planes in the air, which means they need less gas.
"We're in a recession, and people don't want to buy," Economics Professor Leonard J. Mirman said. "There is just not enough demand."
In Charlottesville, prices for regular unleaded gasoline have dipped below a dollar in some places, including the East Coast Express gas station on Route 29. At the nearby Chevron gas station on Emmet Street, the price for regular unleaded was $1.19 per gallon on Oct. 31. The drop has caught the attention of many price-conscious students.
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"I think it's absolutely great," said third-year College student Haresh Patel, who has kept a log of his gas mileage for the past four years. He says prices haven't been this low in two years. Patel paid about $15 for a tank of gasoline in 1999. Before the September price cut, he was paying about $24.
Gas prices are determined by local competition. At one gas station in Tacoma Park, Md., Maria Ngo said, "My husband and I base our prices on what our neighboring competitors are charging.
"Every store sets its own price. Sometimes, the price will change daily, remain for a few days, and sometimes it will remain steady for a week. It just depends on how much it costs to order the gas, which usually occurs three times a week."
The differences between the gas prices from one block to the next are caused by major oil companies' use of a "zoning system." Companies dictate prices to their individual merchants based on several criteria: the number of nearby competitors, the amount of traffic that passes by a gas station and the relative affluence of the neighborhood in which the gas station is located.
Though this may seem arbitrary for consumers, the coordination between local dealers and oil companies actually prevents price wars. If local dealers priced according to the prices of dealers around them, they would simply slash prices. By setting prices themselves, the national oil companies keep local merchants from making rash decisions.
The system works at the local Chevron gas station.
"I really have no idea how the gas prices are determined," said the attendant. "All I know is what I see on the sign when I come in to work.
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