The MPG Catch 22

[eniwetok]

Here's a Catch 22... gas prices are low... so people feel free to buy gas guzzlers...

But are oil/gas prices low not just because the US is producing more oil... increasing the world supply but BECAUSE we've improved MPG standards to reduce demand? US gas usage in 2015 is LESS than 2007 levels.

FROM: https://www.eia.gov/tools/faqs/faq.php?id=23&t=10

In 2015, about 140.43 billion gallons (or about 3.34 billion barrels1) of gasoline were consumed2 in the United States, a daily average of about 384.74 million gallons (or about 9.16 million barrels per day).3 This was about 1.5% less than the record high of about 390 million gallons per day (or about 9.29 million barrels per day) consumed in 2007.

If oil prices are considered to be inelastic, is undermining progress on efficiency... are we destroying the golden goose? Loose momentum on efficiency... and we return to an inelastic market where any shock can create huge increases in price all out of proportion to supply? Then there's the issue of not transitioning to renewables.

[eniwetok]

1. So are we now free from inelastic demand for oil?

An inelastic market for oil allowed speculators and OPEC to rip us off. But since we need to move to alternative/sustainable energy... do we want an elastic market for oil?


From http://www.investopedia.com/terms/e/inelastic.asp

What is 'Inelastic'

Inelastic is an economic term used to describe the situation in which the quantity demanded or supplied of a good or service is unaffected when the price of that good or service changes. Inelastic means that when the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchanged.

BREAKING DOWN 'Inelastic'
Inelastic means that a 1% change in the price of a good or service has less than a 1% change on the quantity demanded or supplied. For example, if the price of an essential medication changed from $200 to $202, a 1% increase, and demand changed from 1,000 units to 995 units, a less than 1% decrease, the medication would be considered an inelastic good. If the price increase had no impact whatsoever on the quantity demanded, the medication would be considered perfectly inelastic. Basic necessities and medical treatments tend to be relatively inelastic because they are needed for survival, whereas luxury goods, such as cruises and sports cars, tend to be relatively elastic.

The demand curve for a perfectly inelastic good is depicted as a vertical line in graphical presentations, because the quantity demanded is the same at any price. Supply could be perfectly inelastic in the case of a unique good such as a work of art. No matter how much consumers are willing to pay for it, there can never be more than one original version of it.