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‘Sticky’ Gas Prices to Plague Midwest

Record high prices in much of the Midwest – including a 60 cent per gallon increase in Minnesota alone – have put a strain on many Memorial Day travelers. However, once the increased demand from this weekend dies down, it is unlikely that prices will follow it exactly. CBS News in Minneapolis explains:

“‘You do tend to see a delay when there’s a reason to drop price,’ said Akshay Rao, a pricing researcher and professor at University of Minnesota’s Carlson School of Management.

Rao said when refineries catch fire or go down, prices should go up right away, so gas stations have cash to buy the next delivery.

‘My current inventory has to take into account what the market is doing,’ he said.

But when fires go out and supply starts to climb, we don’t notice.

‘It’s less visible, less salient, and consumers are not hammering saying, ‘Hey supply went up, prices should be dropping,’’ Rao said.”

Unfortunately, the same inelastic demand that causes rapid increases in price helps to keep it that way. This only serves to exacerbate the already dismal situation for the average Midwestern consumer.

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