Re:Peak Oil Perspective
by nostrademons on Monday September 09, 2013 @04:49PM
(#6356084)
In a free market, long-term demand will never outstrip long-term supply. Why? Because prices will rise to equalize them. As prices increase, long-term demand drops, and long-term supply increases, until they eventually equilibrate.
The problem with this description is that neither long-term demand nor supply is fixed but depends on long-term expected price.
In normal usage in economics the "long-term" refers to an equilibrium where supply matches demand. Demand never outstrips supply but instead drives up prices until a new equilibrium is reached at a lower quantity and some current petroleum users are forced into alternatives.
This is the essence of economics: the study of the allocation of scarce resources. Notice "study" as this is a completely natural process.
In other words, "when does long-term demand outstrip long-term supply?" The concept isn't to blame, it's just misinterpretation of it in the popular media.
At any rate, as you pointed out, the interesting question is "what does rising oil price do to the economy?".