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Politics : Politics of Energy
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To: J_F_Shepard who wrote (1507)8/12/2008 5:42:10 PM
From: TimF  Read Replies (1) of 86355
 
It would only work that way if the price elasticity of demand was exactly one.

Oil is generally very inelastic in the short run, small changes in supply or demand can lead to relatively large changes in price. It becomes more elastic in the longer run, but its still somewhat inelastic.

More generally goods and services have elasticities that can change at different points of the price curve and at different time scales. And elasticity is frequently other than 1 at many of these different points.

There is no good reason to assume that an increase or decrease in supply or demand of 10% will have a 10% effect on price. It could have a very small impact on the price, or it could cause the price to go up several hundred percent (or more in some more narrow cases).
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