> windowsME wrote:
> Then that isn't elasticity :-p
Elasticity denotes the change in quantity demanded depending on the change in price - if a high price means they "still" don't demand oil - then nothing has changed. If a lower price means they "could" (not would) demand more oil - then nothing has changed.
Oooh, this is where it gets interesting. Let me take a moment to illustrate the whole idea of this theory:
Assume two nations exist in the world: An agricultural nation denoted A, and an industrialized nation denoted I, each with 100,000 people.
In a world with $20 per barrel oil, it would be easier for people in nation A to convert their communities to industrialized urban environments, as had been done in nation I. Assuming a relatively healthy global economy, 1,000 people in nation A may decide to give up their rural lives and accept factories being placed in their towns, move to more industrialized regions, or industrialize their farms, all of which increase the demand for oil.
A couple notes here: As a person crosses over from pre-industrialization to industrialization, their will to revert to pre-industrialization is probably lessened, assuming they integrate in the first place. True, a person may walk into a city, be disgusted by some aspect of urban industrial society, and immediately leave. But once you've been integrated into the society, it's hard to leave. Therefore, the short term elasticity results in long term inelasticity.
Now, let's assume that the price of oil went to $100 a barrel one year later, after 1,000 people converted to industrialization. Nation I and the 1,000 converts would have an inelastic demand. However, for the now 99,000 people of nation B, it becomes more expensive to industrialize, discouraging their purchase of oil. For some people, industrialization will be too expensive. As the price of oil goes even higher, it may be that rural economies would be preferrable to industrial economies, halting industrialization altogether.
But there's something else to note here: The added industrialization from those 1,000 people who converted puts an upward pressure on oil prices due to added long term demand. That demand is inelastic, so there's no way out of it.
So yes, long term, oil is inelastic. However, in the short term, oil has a mixed elasticity in which its price actually does influence demand.
> At the point where their quantity demanded of oil *actually* changes based on price (say they begin industrializing at 60 dollars a barrel, but quit at 100) then they have shown oil to have at least some elasticity.
The issue, even then though - is that "some" elasticity does not denote whether demand is elastic or inelastic - it is the point at which the change in demand over the change in price is greater than 1 - which is simply not the case with oil.
For oil to be elastic, when it went up from 50 dollars a barrel to 100 dollars a barrel, quantity demanded would have had to have fallen by 100% - it didn't. Making oil, by economic definition, inelastic.
Does quantity demanded vary slightly? Of course - but that does not meet the definition of oil having reached the point on a demand curve that is price-elastic. Also - oil is oil, it doesn't really count to say "well, in these little regions of the world, oil has an elastic demand" (even if that is the case) - you must aggregate them together with the american oil monster to discover the actual elasticity still.
> You're just wrong on this. A good can be both inelastic and elastic at the same time.
Take drugs for example. If the street price of a $10 drug suddenly increased to $100, would it influence demand? Yes and no.
No= Drug addicts are still addicted. They would find a way to pay for it.
Yes= New potential drug users are less likely to get involved in the drug in the first place.
Short term, inelastic.
Long term, elastic.
You have to factor in demographic groups, or else you're just dumbing down economics to the point of being useless and unrepresentative of society.
