Commentary Number 1 Supply and demand deal with the entire relationship between the quantity supplied of a good

or service and its price (supply), and the relationship between the quantity demanded of a good or service and its price (demand) respectively. In a free-market economy an economy where government involvement is minimal demand is controlled by the consumer and supply is controlled by the producer. !o further e"plain this theory, let us look for e"ample at the market for eggs (#ig $). !hroughout this e"ample, we will assume ceteris paribus and economic term which means %all other things equal% which in turn translates into %other factors of economy are said to be unaffected% and investigate the market at different levels of economy (consumer, producer, etc). Imagine, a farmer produces &' eggs per day, and the people living in the town only consume &' eggs per day. (owever, if an inflow of immigrants affects the town and those immigrants like eggs, then the quantity demanded for eggs will increase, and the thus the farmer will have to produce )' eggs per day now. !his has caused an increase for the supply curve as the supply increased from &' to )' eggs per day. Slowly, the equilibrium point (the point where the supply and demand curves meet) will change from S$ * +$ to S, * +$. !hus, one can observe the effect cause by the influ" of egg loving immigrants. -ow that this theory is clear, we can try and apply it to oil. In the oil market, it has always been hypothesi.ed that oil will run out and people will be very desperate as it is hard to find an alternative (i.e. while demand is high, supply will reach .ero). (owever, investigating this economic dilemma using economics methods, one can see that oil will -/! run out. +rawing a simple supply and demand diagram like the one in #ig $ can show why oil will not run out. 0s we can see, the less oil present, the smaller the supply. !hus, if the supply keeps on shrinking, then there will be constant shifts of the supply curve along the demand curve. !his means that that as supply approaches .ero, the price of the oil will arbitrarily reach infinity. -ow we know that this is impossible but it is possible that the price of the oil will be really high. In this case, only persons who are very rich and have a lot of money can purchase oil. It will become a lu"ury good rather than a (what is now anyway) necessity. #urthermore, once the quantity demanded arbitrarily reaches .ero, very few people will buy the oil while it will still be present in the ground. !his can all be seen in #ig ,.

In addition, from #ig ,, the equilibrium point can be seen moving along the demand curve as Sn, n 12 infinity where the price and quantity points are 3e n and 4en respectively. 5y the time the equilibrium point reaches that of Sn, then people will have found substitute goods (goods that are cheaper and offer similar satisfaction) including hybrid cars, bikes, subways, buses, etc.

6ven in other uses of oil, people will have converted to heating methods that do not use oil, e". wood, electric heaters, etc. !herefore, it can be observed, that total depletion of oil is virtually impossible because of the many substitute goods out there. If enough fear is built in to people having them believe that they will not be able to survive if the oils runs out, then many of them will not wait for that moment and will switch to oil alternatives immediately. 6ven government-endorsed programs like fuel cell technology will become unnecessary because they will be e"pensive and there will be absolutely no need for them. So really7 government doomsday warnings about depleting oil are flawed. #ig $ #ig