Everyone is an Economist...
It seems like as gas prices go higher and higher more and more people know how to fix the system. There is a chain e-mail going around that I have seen where the person is telling us to boycott the two biggest oil companies, which will lower prices. The guy/gal must have failed his/her freshman econ course in college because that just doesn't work ... They are trying to apply microeconomics on a macro scale. They seem to think that reducing demand for only Exxon is going to cause them to lower their price. While this may be true and would put pressure on Exxon, the demand for gas would not have changed at all. The only way for there to be an industry wide decrease in price is if the demand for the industry as a whole decreased, which isn't happening when you decide to buy one type of oil over another.
The second great idea was written as an editorial to the
Denver Post by a
Chuck Saxton, of Bennett, who decided that a nationwide speed limit should be set and therefore would reduce oil consumption. Yes Chuck, by lowering the speed limit on the nation's highways, you are going to get people to drive less ... People don't obey the speed limit anyways! What makes you think a little change in the speed limit will do anything besides raise revenue in the form of speeding tickets? It has nothing to do with the gasoline industry at all. Yes it's a known fact that cars are most efficient when traveling around 60 mph and any faster than that results in reduced gas mileage, but this change is so insignificant that the suburban family's Hummer will still get 7 mpg regardless of if they are going 75 mph or 60 mph.
What these new found economists need to realize as they go back to school and take an economics course is that the demand for gasoline is inelastic. The demand for it is pretty set in regards to price. This means that just because the price goes up, we can't easily change our demand. This is due to the fact that there really aren't any substitutes in the market that we can use. All of our short-term options are limited. People can't just go out and buy a new efficient hybrid car as soon as prices hit $3 a gallon. So in the short run demand really can't change as price fluctuates. But in the long run demand will shift. Down the line, people will start buying more fuel efficient cars and companies will start investing in cleaner fuels and better technology since it becomes more economically feasible to do so. As the price of gas gets higher and higher the prospect of spending the extra money to research fuel efficient cars and alternative fuel burning cars becomes the better choice. Eventually it will get to the point where gas prices are so high, (the supply of gas is so low) that the cost per month of leasing a new fuel-efficient car is cheaper than the cost per month of putting gas in to one's SUV.
Eventually the market will stabilize; there are no real short term goals to the gas situation. People need to realize this and stop coming up with these short term silver bullet goals that are not economically possible and realize that the shift from fossil fuels will happen, in the long run.