[wludavid]

Originally posted by Noah
I'm not an economist, and I didn't stay at a Holiday Inn Express last night, but I don't think price increases track so closely with demand increases. Someone with a better economics background will hopefully speak up, but it seems to me that there are numerous economic examples in which a slight increase in demand resulted in a comparatively dramatic increase in price. The first example, incidentally, that comes to mind is the market for early 911S and RS Porsches. Early 911S values have roughly quadrupled in the past ten years (i.e., a near-mint, original 911S coupe that was worth $20K in 1996 sells for $80K today).

Have we seen, in the past ten years, a quadrupling of demand for early 911S's to account for the quadrupuling in price? I don't have any hard data, but my gut says no. Getting back to oil prices, I think the story is similar: small increases in demand cause large increases in price, especially in as tight and global a market as oil.

Terrific WSJ editorial today on the subject:

http://www.opinionjournal.com/editorial/feature.html?id=110008286

Noah, those kinds of things are exceptions and have to do with scarcity of the product (in this case 911S's in good shape). An inelastic commodity like oil is not scarce (yet) and therefore price should track demand nearly 1:1.

edit: Interesting point about ethanol made in the editorial...