Question

2.3.2 11 an economist wants to test a theory on why the price of a product like gasoline fluctuates so much, what kinds of problems might he or she face in getting information? What kinds of variables exist in the market for a product like gasoline? Are some of the variables more important than others? Which? Why? . .

Answer 1

1.
Economists will face different kinds of problem in getting the information. The first kind of problem is the different reasons behind the price fluctuation in gasoline in different markets. It makes asymmetry in the information that affects the price of the gasoline. It creates doubt and credibility of the factors that affect the price. The second problem is the context that keeps changing and price fluctuates. Sometimes it could be the demand shock and at other occasions, it will be supply shock.

2.
Variables, are demand among the consumers, presence of substitutes, state of industrial output, international demand, war like conditions in the market and supply shocks that can affect the price of gasoline.

3.
Variables that are more relevant to the economic condition, are the most important variables. Variables, such as local demand and its elasticities, presence or absence of substitutes and government regulations affecting taxations upon gasoline are important variables, because these variables are most relevant to the local market conditions.