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Well, the debate often gets off track, but the definition of the term "peak oil" is "when production stops increasing due to market demands and starts decreasin
by jofer 13y ago
Well, the debate often gets off track, but the definition of the term "peak oil" is "when production stops increasing due to market demands and starts decreasing due to geologic control".
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?".
- nostrademons 13y agoIn 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.
- spikels 13y agoThe 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.