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It's interesting to think about the relative speed with which operating point on the demand and supply curves might change. In Jerome's supply example, the costs are connected to long-term availability of power plants, fuel, and regulations. But the demand is controlled by the consumer.

So if the supply curve changes for some reason, then the demand should be able to change immediately in response. On the other hand, there is some hysteresis in the demand curve also, because the consumer is not likely to make a quick change in usage habits.

For example, when the price of gasoline jumped from $2.90 to $3.10 per gallon last week, I did not suddenly reduce my driving to compensate. That is, there was a change in the supply curve (downwards), but I continued to demand the same amount as I did previously.

If it takes energy consumers a while, say perhaps two months, to change their consumption habits, then the operating point will be offset from the theoretical operating point for that period. I suppose that my demand would be expected to gradually move down my demand curve until it intersected with the newly changed supply curve. So this would be an example of where my small part of the economy is operating outside of the simplistic "intersection of the supply and demand curves" model.

I suspect that this is dicussed in one of the later chapters of my old copy of Samuelson's Economics...

by asdf on Sun Nov 11th, 2007 at 08:55:15 AM EST
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there was a change in the supply curve (downwards)

Actually the supply curve moves to the left, which makes it move "upwards" on the S-D curve...

by asdf on Sun Nov 11th, 2007 at 08:58:27 AM EST
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The gasoline consumer sees a price every time he drives by a gas station (not even every time he stops at the pump), but the electricity consumer doesn't see the instantaneous wholesale price of electricity when he switches an appliance on. He gets a monthly bill. And then again, the monthly bill is often a flat rate (possibly by tiers: the first so many kW-h cost this much, the next so many cost that much, etc). so the wholesale supply curve is invisible to the consumer, even industrial-scale consumers. And even the gasoline consumer with his frequent information updates on the price of gasoline won't be likely to reconsider his driving habits more often than once a month, when looking at the state of his accounts, unless he sees a price spike in which case he may engage in panic buying or decide to park the car altogether for a few days. Finally, energy is akin to a Giffen good in that people are likely to consider their energy consumption "fixed" and not part of their "disposable income" that they shuffle around. So increasing energy costs just lead to lower disposable income and so in the short term reduce demand of other consummables, not demand for energy. Energy is not a Giffen good in that people don't consume more energy when it is more expensive.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sun Nov 11th, 2007 at 09:40:53 AM EST
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To be a Giffen good, energy consumption would have to rise when the price increases. Inelastic demand is not enough: elasticity must be negative.

Words and ideas I offer here may be used freely and without attribution.
by technopolitical on Sun Nov 11th, 2007 at 02:44:59 PM EST
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Bus tickets should be a Giffen good. As the price of oil increases, demand for bus services goes up, in spite of the increasing bus fuel surcharges.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid (arvid.hallen at gmail.com) on Sun Nov 11th, 2007 at 11:34:30 PM EST
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