The price of gasoline has fallen across several UK supermarkets, dropping 2 pence to 112.7p a litre. The price drop has been seen across three major UK supermarkets – Tesco, Asda, and Sainsbury, and is the second price drop in two weeks. Furthermore, the price of diesel has also fallen by a similar amount. The price drop follows a dip in the price of crude oil, which has dropped from $55 a barrel to $50.
In this case, the price has decreased because of an increase in the supply of gasoline. The supply determinant at work is cost of factors of production. Crude oil is an input that must be refined in order to produce gasoline, meaning it is a factor of production. Its price has fallen in the past month, so suppliers are experiencing less cost when producing gasoline and are willing to supply more.
The effect of the change can be seen in the supply and demand graph. The supply curve has shifted to the right, increasing the quantity and decreasing the price.