The
Power of a 1-to-1.5 Oil Ratio
Suppose that when the world reduces demand for oil by 1
percent, the world price of oil falls 1.5 percent. How much money
does that save consumers?
There’s no trick to the problem; the total savings
is 2.5 percent (or extremely close to that). For small changes, the
two effects just add together.
This means that saving a barrel of oil saves consumers
worldwide an additional 1.5 times as much money as the barrel cost,
because the reduced demand lowers the world price.
That’s why a consumers’ cartel is so
important. If I conserve 1 percent, I save 1 percent. But if all
consumers conserve 1 percent, we all save 2.5 percent.
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