Via Instapundit, there's an opinion piece in Forbes about how high oil prices are not causing a drop in demand, at least not in the United States (although the author doesn't mention the foreign angle).
As I previously mentioned in my blog (in a post about the minimum wage), the demand for gasoline, like the demand for low wage labor, is price inelastic, which means that rising prices have barely any effect on demand. So if you read my blog, you don't have to read anything else because you already know what's going on.
Demand inelasticity (as well as supply inelasticity) contributes to the huge swings in prices. So if people want to know why prices are so high, the answer is inelasticity of both supply and demand. This is not an especially unusual situation for commodities. For example, the price of silver has more than tripled since November, 2001.
Isn't the main reason behind the price increase of silver (and gold) from the devaluation (due to inflationary policies) of the US dollar? Not exactly the same reason as behind current (short-term) oil price fluctuations.
Posted by: Just askin' | April 27, 2006 at 04:54 PM
If that is true, what it is still just as expensive to buy gold in euros?
Oil is only relatively inelastic. When gas is at $30 a gallon instead of $3, people will be riding horses to work once again.
Posted by: nobody | April 27, 2006 at 07:50 PM
If demand for gas is inelastic, what happened between 1978 and 1983? Perhaps there is more here than just "It is" or "It isn't", like maybe time dependence and a nonlinear relationship between price and demand?
Posted by: Eric H | April 28, 2006 at 02:45 PM