Any economists?
 

So a discussion about alternative energy erupted in my political science class this morning and it got me thinking.

Let's say the U.S. govt switches over to and requires viable alternative energies tomorrow and we finally have a solution to wane our dependence on petroleum based fuels (domestic, foreign, doesn't matter). From a supply and demand perspective, say 15 years from now those people with petroleum fueled weekend, hobby, classic, or even daily drivers cars. The supply would essentially be very little, but we could be left with a surplus (being optimistic). The price for gasoline would be astronomically higher to what we pay currently because the demand just isn't there any more, correct?

Any thoughts?

Ethanol is fair, but I don't think US is capable of producing enough to satiate our enormous appetite but I guess it would be the answer to the people who keep their gas based cars.
Hmm

No I am saying we have supply, just no demand or a very minimal demand.
Cash for goods is the way to be, I don't get why most people can't grasp that concept. Hopefully more gas stations are going to begin offering lower prices for cash purchases. I've never found one in my area, most of them only offer lower rates if you buy their car wash which is like $10.

"supply" and "surplus" would be the same thing, unless drilling and delivery stopped.

No, it would be much lower. Things that are rare are more expensive than things that are abundant. It could only become scarce if 1) it could not be found or 2) companies were prohibited from drilling for it or delivering it. On the other hand, the price can also increase if artificial financial barriers (e.g. taxes or tariffs) are erected, resulting in a decrease in demand, even if the product is abundant.

If more people "demand" a product, they are willing to pay more. If few want it, there is less competition, and a relative abundance ("supply") of the product on the market increases and the price falls.

If China and India suddenly stop buying oil, you and I will be buying gas for less than $1. If the government taxed gas at $9 a gallon, the demand will go down and the companies that supply the product will charge less and less, but the price can't go below the tax + the cost of production and delivery, so it can't go below $9, even if there is no demand.

This is why there is a myth about "greedy big oil." There was no "greedy big oil" years ago when the oil companies were finding it nearly impossible to make a profit. Did they suddenly get greedy join together and find a way to control the industrial complex? LOL! It's simple economics, not a conspiracy..

Thanks for clearing that up Arminius, I initially figured the price would go down but I just couldn't justify it because it seemed like they were selling less so they'd have to raise the price to break even or something.

But all right, thanks!

Then come here! We've got a place that takes 5cents a gallon off if you pay in cash! Swifty's, oh, gotta love that place!

There is also an x factor in there ....

If we switch to alternative fuels, deleting our need for gas completely, at first you have those that abandon the old and buy the new, there would be those that panic to no end screaming the end is near, then their are those like us who would seize an opportunity to buy up old metal and retrofit it to new technology while recycling the old ... Life always has a way out ..

Oh and BTW unless we go solar, we will simply be trading in one demand for another, just with a different supplier ...

ARCO is like that too. Generally, most stores raise prices to force everyone to subsidize their credit card transaction fees...whether you pay in cash or not. The guy with the credit card gets the deal. The guy paying cash is unknowingly getting screwed.

It will be interesting to see what price point gas averages at over its lifespan. Logically, it will never be extremely high (i.e. gold rates) since its use is as a cheap form of energy. The more expensive it becomes, the less demand will exist. The less demand that exists, the less expensive it will become.

The only hope for a graceful transition to alternative energy is if that interplay pans out over a long enough period of time for alternative energy to "catch up." Barring a run to nuclear or coal, I doubt alternative energy can support oil's decline while meeting the world's ever-increasing demand. Something is going to give.

- LostCause

Yeah, that's at least partially because they don't have to give the credit card company their percentage. Good PR on the part of Swifty's.

Lets see here...If the demand is low and the supply is high then the price SHOULD be low (many sellers trying to sell their stuff to relatively few buyers means the price usually drops. This is happening now in the housing markets in some parts of the US as the lenders flood the market with houses they are trying to sell. ) provided there are no other factors in the mix (like taxes to reduce greenhouse gas emissions etc) according to classic s/d theory.

So to answer your last statement about "the price being higher since the demand just isn't there anymore".
It is actually the other way around.

Hope that is some help.

By the way I obtained my degree in economics in '78.

Pete.

Most things that are outdated tend to still be available like old car parts. Something needs to be made truly obsolete to become hard to replace, ever try to get a vacuum tube or replace a component for a 20 year old computer. But again what is the point right?

We are going to have some really good batteries before that is inconceivable. Gasoline and Diesel are way to useful to become obsolete and too many things run off them that will have decades of service life in them when such a technology comes out.