Tuesday, May 08, 2007

Matt on Oil

Here’s my good friend, Matt, on the feeble idea of a one day boycott on gasoline for May 15th that he knows about.

The take away:

Even still, this thinking has its own flaws. As soon as demand returns to what it was prior to the protest, the point of equilibrium between supply and demand will rise once more, in turn causing the price of gas to rise to what it was before the protest took place.

I appreciate the intentions of the protest. Unfortunately it will serve no purpose in the end other than to inconvenience you as a driver and a consumer.

And yes, I agree.

To add my own bit of commentary, it’s important to remember that while the price oil is changed by our demand, OPEC operates as a cartel and strives to affect the world price of oil. That is to say, OPEC has the ability to tighten its production and increase price. I believe that's what happens when the demand for a good is inelastic.
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