> it follows that whenever there is even a VERY SLIGHT [actual] shortage of oil (0.5-1% less supply than demand at any price), then the price of oil has to rise very, very, very high to knock the 0.5%-1% of lowest-value use out of the bidding market. Maybe prices have to double just to get 1% lower use.
The price elasticity of demand for crude oil is somewhere between 0.2 and 0.3, meaning a price increase of 1% reduces the quantity demanded by about 0.2% to 0.3%. To get 1% lower use, prices need to only go up by a few percent, certainly not "double".
Great correction. That still describes a "relatively inelastic commodity" (PED = 0 < x < 1) so I think it does make a decent example but readers may need to change the magnitude of some of the numbers. In case anyone is interested, here's an analysis of the elasticity of crude oil:
>Six studies estimate the short-run
price elasticity of oil supply: Half of them estimate a supply elasticity of about 0.25, two of them found
elasticities near zero, and one study estimates a negative supply elasticity. By contrast, thirty studies
estimate the short-run price elasticity of demand. Estimates of the demand elasticity range from −0.9
to −0.03, with the bulk of estimates between −0.3 and −0.1.
The price elasticity of demand for crude oil is somewhere between 0.2 and 0.3, meaning a price increase of 1% reduces the quantity demanded by about 0.2% to 0.3%. To get 1% lower use, prices need to only go up by a few percent, certainly not "double".