Inelasticity

Somebody, I forget his name, said back in the Malaise Era that US energy policies were wacko, to the extent that if we had the last gallon of gasoline on earth, we’d probably sell it for 85 cents.

It would be more like two and a quarter today — with prices on the rise again, I got only one chance to fill Gwendolyn’s 70-liter tank with Shell V-Power at under two bucks a gallon — but while gasoline demand has been declining a bit, a reason for the previous price collapse that was popular among people who fear the wrath of Saudi Arabia, it hasn’t been declining that much, and current car buyers are paying even less attention to EPA fuel-economy estimates than usual. Demand, one might reasonably conclude, is relatively inelastic. And this is not the only commodity so affected:

What if it’s chocolate? What would people not pay for chocolate? The price elasticity for chocolate (whoops, now I’m going to make technical mistakes — beware) is negative. It might even be a Giffen good. In other words, you want it so badly that no matter what Hershey’s charges, you’re going to pay. With regard to the supply going tits up, Starbucks coffee drinkers will drink all of South America’s coffee plants bare. There will never be a point at which gasoline costs too much for us to not empty all the wells. We will eat all of the bluefin tuna sushi until there is no more in the sea, and the businesses between us and the raw materials of the earth will spin their flywheels until the whole enterprise crumbles. In other words, people will watch Robin Williams tell jokes until the day he dies, even if show business is killing him. And the day before his last show, there will be no indication by the price of the ticket that it is the very last ticket.

Consumers won’t know, because whatever it is, they can afford it. And then it’s a ghost town.

At the moment, I’m just grateful there exists no chocolate-covered gasoline — which would, of course, be premium-priced.





2 comments

  1. McGehee »

    6 February 2015 · 2:52 pm

    You’ve just identified the one good thing chocolate can’t make better. The Nobel committee will be in touch.

  2. Charles Pergiel »

    7 February 2015 · 1:05 pm

    When I was a kid King Crab was all the rage (in Seattle anyway), or so it seemed. It was still too pricy for the parental units, and what did I care? My preferred meal was peanut butter and jelly sandwiches. Nobody talks about King Crabs now, all you hear about are Snow Crabs, and they are mentioned with the same breathless excitement, which means they probably aren’t too far from going away too. I shared a pile of smaller crabs with some folks on the East Coast one time. It was too much like eating Martians, and they didn’t taste like beef. And what’s happened to all the cows? Costco doesn’t even carry frozen beef burritos anymore. All you can get is chicken, which is okay, but it ain’t the same, dag nab it.

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