In a free-market economy, one of the key factors that affect supply and demand is competition. When consumers are offered choices, they let businesses know where to allocate their resources based on how and where they spend their money. For example, when Henry Ford first started manufacturing automobiles, there was no competition. He mass-produced the same style of automobile in the same color, year after year. When General Motors started manufacturing automobiles in different styles and colors, consumers started to buy their cars instead of Ford’s. Now that they had options, consumers expressed their preference. Soon General Motors replaced Ford as the country’s leading automaker. Competition for goods and service leads to more pricing equality and the need for companies to differentiate their products.
When it comes to natural resources, supply and demand can be upset by geopolitical events, by natural disasters, or even by a statement or policy initiative from our government or that of another country. When supply is threatened, producers will raise prices and those costs get passed along. If a gas station needs to pay more for the gasoline that it receives, it will pass that cost along to the consumer. While the consumer may feel they are being taken advantage of it's important to remember that the goal of that gas station is to make a profit. The cost of gasoline is only one cost that they bear. They also have to pay employees. They have to pay for the facilities that they are using. All of these costs affect their margin. When they have to pay more for the gasoline that they will sell, not raising the price would affect their margins.