What measures can we take to increase the elasticity

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Unformatted text preview: that our economy can adjust quickly and easily to changes in the oil price. What measures can we take to increase the elasticity of oil demand, and reduce the pain of demand destruction? Measures which increase our citizen’s options for reducing oil use. Increased investment in alternative modes of transport, such as mass transit (both buses and rail), bike lanes, bike and car sharing, and walking improvements to allow many more workers the option of getting to their jobs without the use of a personal car. Improvements in our nation’s rail system to allow more freight to be shifted from truck to rail. Increasing gas taxes slowly and predictably over time to both fund the above improvements, and to signal to consumers that they need to prepare for long term higher prices by purchasing more efficient vehicles and changing where they live so that they have the ability to reduce their driving. The use of road congestion pricing, pay as you drive insurance, and other price signals that give people the right market signals and enhance the most efficient use of our nation’s roadways. Encouraging the electrification of transport (including the alternative transport options mentioned above) to provide transport options which are not dependent on oil. In short, we need to make the market for transportation services more efficient by encouraging new entrants (mass transit, bikes, trains) and competition with the incumbent car/internal combustion engine infrastructure. Competition within the car infrastructure should also be encouraged by sending price signals such as the slowly and predictably increasing gas tax mentioned above to better reflect the dangers to our economy posed by the new oil market regime. 15 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 US purchases of oil control its market price – Reductions in consumption decrease its price Jaffe, Wallace S. Wilson Fellow for Energy Studies at the James A. Baker III Institute for Public Policy at Rice University , 08 Amy Myers Jaffe, Wallace S. Wilson Fellow for Energy Studies at the James A. Baker III Institute for Public Policy at Rice University, 4/5-08, [“The Impending Oil Shock: An Exchange,” Survival: Global Politics and Strategy, 50:4, 61-82, http://www.tandfonline.com/doi/abs/10.1080/00396330802329048] E. Liu Given the large scale of US purchases, incremental US acquisitions of oil affect its overall international market price. Stated another way, the cost of each marginal barrel is higher than the price paid for that barrel, since this additional purchase affects the costs of all oil consumed. From the perspective of the United States, this constitutes an externality.6 On the other hand, the fact that the United States faces a rising supply curve for oil gives it monopsony power. To the extent that America, or a group of consuming countries on a comparable scale, takes concrete actions to reduce the size of its purchases, it can lower the market price of oil. This can happen by accident (as, in the past, through economic recessions)...
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