Implied Dissent

Tuesday, February 21, 2006

Fungible doesn't mean elasticity is zero

I like Scott Adams, Dilbert is one of the few comics that is worth a damn, but he doesn't really know what he's talking about vis-a-vis the world oil market. He is right that cutting back on our use of oil won't affect terrorism much; whether the effect would be small or non-existent I'm not sure, but it would be too small to worry about. However, if US citizens' demand curve for oil moves down (which is what all of us switching to more efficient cars would very likely do), the world's demand curve moves down. Yes, in the short run the oil we don't use would be used by others, but that's not terribly important. I'm not sure how fast supply would adjust to the change, but the price of oil would go down quickly and quantity would go down eventually. This means less revenue and profit for oil companies and oil-exporting countries. Like I said, this would not likely have any significant impact on terrorism, but the economics are definitely not what Adams thinks they are.


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