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You are assuming that demand is constant, but oil can be replaced by other sources of energy. Whith a high price of the oil there are electricity generatora tha
by cuchoi 11y ago
You are assuming that demand is constant, but oil can be replaced by other sources of energy. Whith a high price of the oil there are electricity generatora that do not profit, so they don't generate energy, leaving space for other cheaper sources.
Also, it is arguable that other costs, such as car gas rises, some people will use public transportation. This sustitution effect can be applied to many other examples.
- stindle 11y agoThe example assumes that all other factors (like demand) remain constant. You are correct in saying that a higher oil price will lead some users to switch to a different energy source in some scenarios. The point is to explain why financial commentators say (especially recently) that "the strong US dollar is causing commodities to sell off."