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Are you accounting for the possibility that rural America is not big and rich enough to uphold the world's gasoline infrastructure all by itself? Cheap gasoli

by fooker 9y ago

Are you accounting for the possibility that rural America is not big and rich enough to uphold the world's gasoline infrastructure all by itself? Cheap gasoline, as an industry relies on the economies of scale to a large extent. That is what this article is talking about. If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices, which... At some point, it becomes more costly to continue supporting gas.

jstanley 9y ago
> If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices, which... And yet markets converge on price equilibria all the time without descending into runaway chaos.
- fooker 9y ago
  Not when a new technology is already there to eat its lunch.
ianferrel 9y ago
>If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices This is nonsense. A drop in demand reduces prices. Yes, there are economies of scale in oil production/refinement, but they are dwarfed by the marginal cost of extracting the last barrel, which is what drives the global price of oil.
- uoaei 9y ago
  This is a typical refrain, but doesn't account for second-order effects. At first, the price will drop. But the ongoing supply will pile up and need to be stored somewhere. Storing stuff is generally more expensive than not producing it. So production downsizes, and the little amount of product that ends up being produced costs more per unit than the larger-scale production process, and so prices go up. Also, prices will go up at the end of this transition due to scarcity and an ability to weasel money out of people who will pay more to hold on to what they're used to.
skybrian 9y ago
Small planes use 100LL which is expensive but fairly widely available, despite being a very small market. It seems reasonable to expect rural use of gasoline to be bigger than that?

by fooker 9y ago

jstanley 9y ago

> If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices, which... And yet markets converge on price equilibria all the time without descending into runaway chaos.

fooker 9y ago
Not when a new technology is already there to eat its lunch.

ianferrel 9y ago

>If the demand drops, the price goes up, leading to a further drop in demand, which drives up the prices This is nonsense. A drop in demand reduces prices. Yes, there are economies of scale in oil production/refinement, but they are dwarfed by the marginal cost of extracting the last barrel, which is what drives the global price of oil.

uoaei 9y ago
This is a typical refrain, but doesn't account for second-order effects. At first, the price will drop. But the ongoing supply will pile up and need to be stored somewhere. Storing stuff is generally more expensive than not producing it. So production downsizes, and the little amount of product that ends up being produced costs more per unit than the larger-scale production process, and so prices go up. Also, prices will go up at the end of this transition due to scarcity and an ability to weasel money out of people who will pay more to hold on to what they're used to.

skybrian 9y ago

Small planes use 100LL which is expensive but fairly widely available, despite being a very small market. It seems reasonable to expect rural use of gasoline to be bigger than that?