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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: yard_man who wrote (21460)1/17/2005 4:32:45 PM
From: CalculatedRisk  Read Replies (3) of 116555
 
Over the years, there has been some excellent economic analysis on the price elasticity of gasoline. (If I can find some of the papers I will post them - most are from the late '70s and early '80s for obvious reasons).

Both the supply and demand curves are very steep for gasoline. This leads to large price swings. In the short term, the demand for gas is fairly inelastic. In the medium term (say 5 years), gas use is elastic ... people will use less, buy smaller cars, etc ... and more production will come on line.

HOWEVER, if we are at peak oil production (it will probably happen anywhere from now to 15 years from now), by the time people respond to the price increase by reducing usage ... there will be another shock as production falls. This cycle of price shocks, reduced usage, then another price shock will repeat itself until we find a viable alternative to gasoline.
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