Corth wrote:Sarvis,
Why wouldn't oil companies earn record profits? They get to sell their oil at a higher price because demand exceeds supply? That's a great situation to be in for a commodity producer.
So then what's happening? Has demand vastly, vastly increased? I'm sure it's gone up, but at a steady and measurable rate as a few 16 year olds every year get their license. Of course, while that's happening some people are ceasing to drive so... well, it's probably not increasing all that fast.
In fact, I'd say that increased profits do not come from higher demand. Higher prices should reduce demand. That's how the free market manages supply and demand, after all. Therefore as the price goes up, the demand should go down and the profit should basically even out. Further I'd point out that we're not seeing shortages like we did in the 70's, yet prices and profits are both higher than they were when we actually were short on supply.
So then is supply dropping? Well, no... not exactly. The price of the raw materials are certainly increasing... but that's just it. If the raw material price is increasing, that should
eat into the profits rather than increase them.
What we're really seeing is that the price to produce gas went up 5 cents (completely made up number,) and the gas companies raised prices 10 cents (again, completely made up...) and demand is relatively inelastic because we can't rapidly change our behavior.
Supply & demand depends on consumer choice to work. Prices go up, fewer people buy. But with gas there's no alternative that allows people to stop buying. If gas goes up $5/gallon tomorrow, 90% of America still has to drive to work.
<a href="http://www.code-haven.com">Code Haven</a> - For all your programming needs.
I detest what you write, but I would give my life to make it possible for you to continue to write. - Some Guy Who Paraphrased Voltaire