9/04/2005

Oil reserves

President Bush is releasing oil reserves in hopes that gas prices will go down (http://www.mytelus.com/news/article.do?pageID=cbc/business_home&articleID=2017980). Will that really help? The nation is in panic over an energy crisis, meaning that demand is soaring, and we will pay high gas prices and high heating costs this winter. Although the price per barrel has been dropping since the release of the reserves, we are at the mercy of the oil companies, who have increased their profits to over 50%. Will the people see any relief in gas prices, or will the oil companies keep it all? There is only one way to decrease demand: increase prices.

3 comments:

Dr. Tufte said...

-1 on Ann's post for a poorly formatted link. I'd also like to see Maddy's link formatted, but that is tougher in comments (I'll put something on my webpage about how to do that).

-1 on Liz's comment for spelling errors.

I'm not really sure I understand the argument that Ann is making. In what sense are we "at the mercy" of the oil companies? They can't raise prices if we won't pay. I also think the figure of 50% seems improbably or misstated. Then the last sentence notes that increased prices will reduce demand - but that seems to be a problem earlier in the paragraph.

There's a lot of hyperbole about oil prices, and business students really ought to know better. (I don't want to discourage your voicing of them, I just want to steer you towards more rational views). The arguments being made, here and elsewhere, are not a whole lot deeper than buyers deserve to have a get-out-of-a-price-rise-free card.

carter said...

Dr. Tufte made an argument that I agree with that we are not at the mercy of the gas companies. They can only raise prices until we won't pay. So really it is just a market and the consumer surplus is going down as prices go up.

Dr. Tufte said...

Inelasticity is really about personal flexibility. I'm not sure we should feel sorry for the inflexible.