Notes on the Re-Run for Saturday, May 5th.

— Andy

The problem with “peak” theories is they ignore the law of supply and demand. As one learns in Economics 101, everything has a demand curve, which shows that as price rises, demand for a product declines. People look for alternatives when prices increase.

This curve is known as the price-elasticity coefficient, and is calculated by the “percentage change in quanity demanded of product x” divided by “percentage change in price of product x”. Some products are considered fairly elastic and other more inelastic, depending on how subsitutable one product is with another one.

Higher prices change both consumer choice and behavior. People will for and foremost look for alternatives. If no alternatives are avaliable, people will alter their use of a product, such as adopting more efficent techniques of use of a product, and then ultimately reducing consumption by choosing alternative methods of living that use less of a product.

For example, gasoline.

If gasoline prices go up, and people believe that gasoline prices will remain high, they will look at alternatives to gasoline, like E85 ethanol or gasoline made from sythentic petroleum. If that doesn’t work, they will over time purchase more fuel efficent cars, canceling car trips, taking public transit, and moving closer to where they work.