方靖 The Chaos

We have witnessed huge fluctuations in oil prices in recent months. Price has plunged more than half since its peak in July. Yes, OPEC can still cut their production, but what would consumers respond?

Generally petroleum is a kind of necessity nowadays. People cannot live without transportation, and there’s no close substitute for transportation by cars, thus a fairly inelastic demand for gasoline, in the short run. However, inelastic demands may change to be elastic in the long run. When people are used to take public transportations and local facilities, the demand for oil will fall.

Besides, prices are no definite indicator to revenues of petroleum exporting countries. Revenue is price times quantity. After you force the market into a zone of elastic demand, cutting production will not increase your revenue but diminish it further – even if the prices turned to rising! So, misters, be careful with what you are going to do.

 Han