Written by: Bailey Zimmerly
The End of
Elastic Oil
Oil, a
commodity unlike any other, the basis of transportation, and the wealth of
nations is changing. There is no current shortage of oil, but oil reserves are
becoming more difficult to drill. “The oil supply is becoming less elastic as
new oil supplies come increasingly from unconventional oil” (Konrad). Simply
put, consumers are reacting more to more severe changes in oil prices and any
change in the price of oil produces a small change in supply. Over the past
decade this shift can be seen.
Back in the 1990s consumer reaction
to oil was not as high. The demand was extremely inelastic. Consumers thought
the oil supply would never end and production was not highly regulated. However
now, at least in the long run, the demand elasticity for oil can be more
elastic. This is being done through carpooling, moving closer to work, and
driving more fuel efficient vehicles. Replacing a car or moving may be
unrealistic in the short-run, but in the long-run it becomes more possible
therefore a change in elasticity is possible. However, if oil prices continue
to rise, especially at an exponential rate, then the economy will not be able
to adjust, therefore hammering the country with higher unemployment rates.
However, another side has to be taken into consideration.
Supply side elasticity has remained
steady throughout the 1990s with little regulation. However, now with a strict
oil limits amongst the countries of OPEC, supply will now remain constant with
a rising price therefore forcing supply to become nearly perfectly inelastic.
This problem haunts many of the top world consumers of oil. In the past supply
would always adjust to the demand side of the economy for oil, however a change
is coming.
With this shift away from the
elastic supply of oil, countries such as the United States are going to have to
make many critical changes to prevent disaster from soaring oil prices. Simple
changes such as increased investment in public transportation and encouraging
people to carpool are short term fixes. However, long-term plans including
improving the nations rail system to shift from truck to rail as well as
encouraging the electrification of transportation. Finally, to help pay for
these changes an increase in the gas tax at a slow and predictable rate over
time to provide funds for the nations improvements as well as to signal
consumers for the prices above.
With the improvements listed above
the United States and oil consumers around the world will be more able to
adjust to higher gas prices with a continued limited supply. The markets need
to encourage alternative uses in the transportation sector in order to make it
a successful long-run superpower in the future.
Cited:
"The
End of Elastic Oil - Forbes." Information for the World's Business
Leaders - Forbes.com. N.p., n.d. Web. 6 June 2013.
<http://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-oil/>.
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