Shocking News

I file this under the "dog bites man" file.  And subfile it under the "you paid how much for this study?" category.  From today's Rutland Herald, the headline is

Report on gas, oil, looks at price fluctuations

And the key  finding is straight out of econ 101:

The report states, for example, that over 80 percent of the variation in prices of gas has been due to variations in the price of crude oil.

Who wudda thunk? 

Comments

[George Cross]

But, why on the same day was the price of regular gas $2.61 a gallon on Rt. 89 in New Hampshire, as well as, in Rutland, Springfield and Bellow Falls while it was $2.81 in Chittenden County? Where did that twenty cent differential come from? From the variations in the price of crude? I doubt it.

Last week I saw a three bedroom house for sale in Woodstock listed for $1,200,000 and a similar looking house in Rutland listed for $169,000. Are these variations in price due to building cost? I doubt it.

[Anonymous]

Mr. Cross:

The difference between $2.61 and $2.81 is 7.1%

The report did not say that 100% of gasoline price variations were attributable to price variations of crude. It said 80%. And 7.1% seems to be well within that 20% difference.

Sounds like a good question for a freshman high school social studies exam.

[Art Woolf]

When we look at price variation, we're talking about variation over time, not across space. We can easily explain price differentials in two different areas by differences in costs (delivery, labor, land, taxes, regulatory costs, etc.). So if gas is always 50 cents a gallon more expensive in New York City than in Burlington, VT, the issue is not to explain that, but to explain why the price of gas changes in both locations from that initial differential, that is, why it rises from $3.50 to $3.75 in NYC and from $3.00 to $3.25 in Burlington.

[George Cross]

Anonymous' question should certainly be on a social studies test and not a math one, as the math just doesn't work. The difference is actually 7.66% and 80% of 20 cents is 16 cents. Thus, 4 cents is not attributed to the crude variance. However, the whole question is moot given Art's explanation. While the macro-economic question is understandable, the micro one still makes one wonder.