these price movements, economists focus on the determinants of what gasoline buyers are willing to pay and

what gasoline sellers are willing to accept.

As it turns out, the price of gasoline in June of any given year is nearly always higher than the price in January

of that same year. Over recent decades, gasoline prices in midsummer have averaged about 10 cents per gallon

more than their midwinter low. The likely reason is that people drive more in the summer, and are also willing

to pay more for gas, but that does not explain how steeply gas prices fell. Other factors were at work during

those 18 months, such as increases in supply and decreases in the demand for crude oil.

This chapter introduces the economic model of demand and supply—one of the most powerful models in all of

economics. The discussion here begins by examining how demand and supply determine the price and the
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