George Will does a superb job  explaining how prices work (HT: Sandy Baillie). Read the whole thing but the ending is particularly good:
Pelosi announced herself "particularly concerned" that the highest
price of gasoline recently was in her San Francisco district — $3.49.
So she endorses HR 1252 to protect consumers from "price gouging,"
defined, not altogether helpfully, by a blizzard of adjectives and
adverbs. Gouging occurs when gasoline prices are "unconscionably"
excessive, or sellers raise prices "unreasonably" by taking "unfair"
advantage of "unusual" market conditions, or when the price charged
represents a "gross" disparity from the price of crude oil, or when the
amount charged "grossly" exceeds the price at which gasoline is
obtainable in the same area. The bill does not explain how a gouger can
gouge when his product is obtainable more cheaply nearby. Actually,
Pelosi’s constituents are being gouged by people like Pelosi — by
government. While oil companies make about 13 cents on a gallon of
gasoline, the federal government makes 18.4 cents (the federal tax) and
California’s various governments make 40.2 cents (the nation’s
third-highest gasoline tax). Pelosi’s San Francisco collects a local
sales tax of 8.5 percent — higher than the state’s average for local
Pelosi and others who just know, evidently
intuitively, the "fair" price of gasoline must relish what has happened
in Merrill, Wis., where Raj Bhandari owns a BP gas station. He became
an outlaw when he had what seemed, to everyone but the state’s
government, a good idea. He gave a discount of 2 cents per gallon to
senior citizens and 3 cents for people who support local youth sports
But Wisconsin’s Unfair Sales Act  requires
retailers to sell gasoline for 9.18 percent above the wholesale price.
The state’s marvelously misnamed Department of Agriculture, Trade and
Consumer Protection has protected consumers from Bhandari’s discounts
by forcing him to raise his prices. Some customers now think he is
Some Wisconsin legislators are considering
changing the Unfair Sales Act to allow retailers to discount gasoline
to benefit things those legislators think should be benefited. In
Madison, Wis., as in Washington, D.C., it is considered eccentric to
think that government should butt out, let people buy and sell as they
please, and let markets equilibrate.