David and Neolib, Supply/demand curves are too simplistic wrt to status quo. There needs to be some sort of hysteresis function about the familiar range to more correctly describe consumer behavior. Once price pushes the bulk of consumers past the hysteresis step, then demand changes. It is generally not the nice smooth curve they show in economics textbooks.
I'm sure you guys would prefer clear-cut scenarios, but the rise in gas prices already has an effect on many people's habits. A few more people are carpooling than before. Those deciding between an SUV and a minivan or station-wagon now tilting a little bit toward the latter. Families no longer making quick trips to the supermarket just to get milk. More people putting off road trips in favor of vacations closer to home.
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Meanwhile, I view technologies like hybrid vehicles as forming a ceiling on potential gas prices hikes. For instance, let's say the Accord hybrid gets 26 MPG vs. the regular Accord at 22 MPG. (Consumer Reports puts their respective gas mileages at 25 and 23, but I'll widen the gap to make a point.) The price difference is $2,000, I think, which means at $2/gal, driving 15K miles per year, it will take 10 years before the hybrid pays for itself in terms of gas saved.
So right now, owning a hybrid doesn't make that much economic sense. But what happens when gas goes to $3/gal? It will take 7 years before the hybrid pays for itself. $4/gal? 5 years. By then, there will be such a huge demand for hybrids that every new car out there will include a hybrid version. Demand for oil will drop significantly, which will put tremendous downward pressure on oil prices. This downward pressure will continue until either gas is relatively cheap again or every car on the road has been hybridized. The first scenario will hold off the inevitable, but the second will be the only thing that can make gas break the $4/gal ceiling.
And that ceiling is a lot lower than the $6/gallon ceiling that might force someone like yourself to drive less. Hopefully before then, we'll run into the next cool piece of technology that helps us conserve even more.
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