Demand destruction

Demand destruction

Demand destruction is an economic term used to describe a permanent downward shift in the demand curve in the direction of lower demand of a commodity such as energy products, induced by a prolonged period of high prices or constrained supply.

In the context of the oil industry, "demand" generally refers to the quantity consumed (see for example the output of any major industry organization such as the International Energy Agency), rather than any measure of a demand curve as used in mainstream economics.

The term has come to some prominence lately as a result of the growing interest in the peak oil theory, where demand destruction is the reduction of demand for oil and oil-derived products. The term is used by Matthew Simmons, Mike Ruppert and other prominent proponents of the theory. It is also used in other resource industries such as mining.

A familiar illustration of demand destruction is the effect of high gasoline prices on automobile sales. It has been widely observed that when gasoline prices are high enough, consumers tend to begin buying smaller and more efficient cars, gradually reducing per-capita demand for gasoline. If the price rise were caused by a temporary lack of supply, and the price then subsequently goes back down as supply returns to normal, the quantity consumed in this case does not immediately go back to its previous level, since the smaller cars that had been sold remain in the fleet for some time. Demand thereby has been "destroyed"; the demand curve has shifted.

The expectation of future prices and their long-term maintenance at non-economic levels for a certain quantity of consumption also affects vehicle decisions. If the price of fuel is so high that marginal consumers cannot afford to do the same mileage without switching to a more efficient car, then they are forced to sell the less efficient one. A glut of such vehicles causes the used market value to fall, which then increases the depreciation expected of a new vehicle, which increases the total cost of ownership of such vehicles, making them less popular.

See also


Wikimedia Foundation. 2010.

Игры ⚽ Нужен реферат?

Look at other dictionaries:

  • Destruction of country houses in 20th-century Britain — Trentham Hall demolished in 1912. The Italianate Trentham was so lavish that the Shah of Persia in 1873 remarked to the future King Edward VII, of their host too grand for a subject, you ll have to have his head off when you come to the throne.… …   Wikipedia

  • Habitat destruction — The Chaco thorn forest is being felled at a rate considered among the highest in the world to give way to soybean cultivation. Habitat destruction is the process in which natural habitat is rendered functionally unable to support the species… …   Wikipedia

  • Dr. Matt Destruction — in 2007 Background information Birth name Mattias Bernvall Also known as …   Wikipedia

  • Creative destruction — Crowd at New York s American Union Bank during a bank run early in the Great Depression. Marx argued that the devaluation of wealth during capitalism s periodic economic crises was an inevitable outcome of the processes of wealth creation.… …   Wikipedia

  • Iran and weapons of mass destruction — This article is about Iran and weapons of mass destruction. For Iran s nuclear power program, see Nuclear program of Iran. Weapons of mass destruction …   Wikipedia

  • Khachkar destruction in Nakhchivan — refers to documented accusations against Azerbaijan of embarking on a campaign beginning in 1998 and ending in December 2005 to completely demolish the cemetery of medieval Armenian khachkars near the town of Julfa, Nakhchivan, an exclave of… …   Wikipedia

  • Reconstruction of automobile destruction — was a psychological study carried out by Elizabeth Loftus and Palmer in 1974 [ [ Loftus + Palmer (1974) ] ] . The aim of the study was to investigate whether or not an eye witness s… …   Wikipedia

  • Mitigation of peak oil — The standard Hubbert curve, plotting crude oil production of an oil well or oil field over time …   Wikipedia

  • 2003 to 2008 world oil market chronology — This article is a chronolgy of events affecting the oil market. For a discussion of the energy crisis of the same period, see 2000s energy crisis and Effects of 2000s energy crisis. For current fuel prices see Gasoline usage and pricing. From the …   Wikipedia

  • Globales Ölfördermaximum — Abb. 1: Oben: Die Förderung einer Ölquelle in mehreren Phasen. Unten: Die Gesamtförderung mehrerer Quellen kann durch die sog. Hubbert Kurve beschrieben werden.[1] Diese Kurve ist die erste Ableitung einer als „logistische Funktion“ bezeichneten… …   Deutsch Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”