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Originally Posted by aceventura3
"The highest price people are willing to pay." I would think that to be the market price.
I want a new Lexus for free, the highest I am willing to pay is still lower than what my dealer is asking. Therefore I don't own a new Lexus. However, others are willing to pay the price the dealer is asking, hence setting the market price. If you introduce "speculators", that won't change what I would pay or what the dealer would sell the car for after his expenses and profit margin.
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So have you slowed down and reduced the amount of gas you use, or hasn't it hit your upper limit yet?
Imagine you had to buy a Lexus (or any other car) for $50,000 or you wouldn't be able to go more than 5 miles away from your house in a day. And there is no limit on the number of people who will buy them, no matter the price, until it gets to $200,000. What happens if you couldn't buy a Lexus from a dealer, but you had to buy it from Bank of America let's say. The dealer has made a deal with BoA to sell them cars for $75,000, it is a lot more than they would make if they had to deal with consumers. BoA knows that the demand curve is very linear, and will offer cars for $100,000. BoA now makes $25,000 as well. Individual investors see that they can make money buying cars and then reselling them for higher amonts, so they will buy-and-hold until they hope to make a few bucks off the consumer that wants/needs a car.