Wednesday, July 30, 2008

Using Trial and Error to learn basic economics

I don't claim to be an expert on economics. I never studied it in college and I don't think I've even read any significant books on the subject. In fact, the last time I can remember receiving any sort of formal education regarding economics was in middle school. There are, however, a couple of obvious points that have stuck with me over the years.

1) When supply is greater than demand, prices will drop.

2) When prices drop demand will often rise.

3) When demand is greater than supply, prices will rise.

4) When prices rise demand will often decline.

See how that works? It's a logical system which has a natural flow. When I saw this article today: http://news.yahoo.com/s/ap/20080730/ap_on_bi_ge/oil_prices it again occurred to me what morons we have running things up there (or maybe it's just that they expect that we're all too idiotic to notice).

Here's how I understand it: Prices have been rising for some time, finally reaching record levels and sustaining them for a while this summer. There was all the talk of economic turmoil, people being unable to afford to drive to work, milk becoming more expensive, and all that. Suddenly, in a week, the price drops 30-40 cents and people start buying it again, thus depleting the supply. Pretty shocking, eh? Prices decline and demand moves back up to near "normal" levels. Who could have seen that coming?

And why is it happening? I'm not sure yet. A lot of people are attributing the drop in prices to the president's recent move to allow for more drilling of our own reserves, and I think there's probably something to that. Oil prices are at least partially dictated by the world marketeers, and they tend to be a pretty skiddish and reactionary lot. According to the official word, as provided by the Enery Information Administration (EIA), who provide the "Official Energy Statistics from the US Government", "...access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030." (http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html)

1 comment:

kristin said...

related article from yesterday:
http://www.nytimes.com/2008/07/30/business/30crude.html?_r=1&scp=2&sq=oil&st=cse&oref=slogin