The demand curve (in this case, blue) shows the quantity of a product that customers are willing to purchase for a range of prices. As the price goes up, normally demand declines. The two major exceptions to this are:
1) Some items you can't live without, such as heart surgery when you need it.
2) Some items you can't live without in the short-term, like gasoline to get to work.
The supply curve (in this case, red) is the quantity that suppliers are willing to supply along a range of prices. As the price goes up, they should be willing to supply more as it then justifies any additional expenses they may have.
The place where the two curves meet is called "equilibrium."
In free markets, customers and vendors usually achieve a harmony that dictates the price and availability of an item.
A cartel is a non-competitive organism that manipulates these basic laws of free markets.
Consumers of oil have, in the short-term, an "inelastic" demand for oil, which means that they need it at almost any price.
Yes, there will be some reduction in demand as the price escalates, as we have recently seen. But the preponderance of oil purchases are fairly non-discretionary.
When you need to drive to work or fly somewhere or heat your home, you can't afford to just say "no" to oil.
In the long run, oil purchases can be replaced with new fuels, conservation, new technologies, etc....
But in the short run, most oil purchases are non-discretionary.
That gives OPEC the opportunity to do what they do: They constrict supply, thereby driving the price up.
In the chart, one can see that the reduced supply creates an equilibrium point at a higher price per gallon.
In the United States, it is illegal and monopolistic for companies to coordinate a reduction in the supply of a product or service. We do not tolerate it.
But we say nothing about foreign countries, many hostile to us, doing the same.
Either the cartels must go (which is unlikely) or we must create a new free market for energy. The only way to reasonably do so is by diversifying the fuels used in our transportation sector (biofuels and electric cars) and by helping our economy move beyond oil.
MoveBeyondOil.org
The bi-partisan, not-for-profit source for energy independence information and solutions.
