Monday, May 01, 2006
Boycotts are for the economically illiterate
My inbox has been filled with moronic "solutions" to the recent spike in gas prices. Like most people who work in a place that has a "Reply All" button on their email I am sick of hearing the droning masses who believe that this stuff will work. Luckily I have the title of "Economist", so people tend to come to me to solve the worlds' problems. In this case, a little economic magic goes a long way. Here is my response to the latest email regarding the boycott of ExxonMobile. I won't post the original message here because everyone has already had it sent to them by "that guy in marketing".
A decrease in demand for gas from ExxonMobile would lead to an increase in demand from the other companies. This is quite logical since, according to this plan, people will not use any less gas than before. Since there is no change in production (or, in boring economic terms, there will be no change in supply) that excess demand will have to get filled from somewhere. Gasoline is a commodity, which means there are no distinguishing features from one product to the next. Because gasoline is a commodity, gas companies buy and sell gas to each other as well as to the consumers. So the sales that ExxonMobile loses from the consumers it will only make up in sales to other gas companies. There is no such thing as a price war in a commodity market.
If anyone knows this “Phillip Hallsworth” please let him know that I will be offering Microeconomics on Tuesday and Thursday nights in Leesburg during Summer A. He only needs to show up for my lecture on the economics of oil
A decrease in demand for gas from ExxonMobile would lead to an increase in demand from the other companies. This is quite logical since, according to this plan, people will not use any less gas than before. Since there is no change in production (or, in boring economic terms, there will be no change in supply) that excess demand will have to get filled from somewhere. Gasoline is a commodity, which means there are no distinguishing features from one product to the next. Because gasoline is a commodity, gas companies buy and sell gas to each other as well as to the consumers. So the sales that ExxonMobile loses from the consumers it will only make up in sales to other gas companies. There is no such thing as a price war in a commodity market.
If anyone knows this “Phillip Hallsworth” please let him know that I will be offering Microeconomics on Tuesday and Thursday nights in Leesburg during Summer A. He only needs to show up for my lecture on the economics of oil
