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Originally Posted by Ghoulish Delight
The problem with just saying "demand will drop if price gets too high" is 1) gas is as close to inelastic a product there is and 2) even assuming its inelastic enough to hit a ceiling, so much of our economy depends on gas that by the time it hits that ceiling and begins to drop, the damage to the economy may be too wide spread. Prices of every single domestic good will be affected as every single domestic good relies on oil and gas. A prolonged spike in gas prices will have long lasting inflationary effects that the market may not be able to absorb.
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Yes! and No.
RIGHT NOW, we're dependent on gasoline. If gas price problems are prolonged or continue to get worse, it will become potentially VERY profitable for companies to come up with alternative fuel options. The more expensive gas gets, the more we suffer, the more likely it is that someone will come up with a viable alternative and the more likely the public will embrace it. In that sense, you could view the fuel price problems as a boon for environmentalists - people are reducing their driving, and industry is encouraged to seek alternative fuel choices.
Now, in the short run. It sucks big hairy donkey balls. Believe me, every time my income goes up, gas prices have jumped to take it all away. I know VERY WELL the pinch of current gas prices. And yes, industry IS affected. Yes, gas prices CAN bring our economy to a grinding halt - in the short term. But seen on a medium- and long-term scale, this is, or at least CAN be, a very good thing.
Remember: right now we're at the mercy of OPEC. The middle east only has about a century worth of gas left anyway, so this was always GOING to happen, it's just happening sooner. If we find alternative fuels, and more importantly, there is widespread adoption of the technology, we can kiss OPEC goodbye. Hopefully we'll find someone that we in America have in abundance, so we're no longer at anyone's mercy.
Innovate or die.