Sunday, March 11, 2012

"Cooking Oil Rustlers"---I wonder how that plays out in the prison population. Nice article on substitutes and how markets respond to price signals

When the price of one good increases it can increase the demand for a viable,  substitute good.  In economics we call these goods, well, substitutes.  Easy enough. 

It also helps to explain the "Substitute Effect" regarding the downward sloping nature of a demand curve:   In the case mentioned below, Crude Oil relative to Cooking Oil:  ""Higher Price: An increase in price (of Oil) causes a decrease in the relative prices of substitute goods (Cookiing Oil). Buyers are inclined to buy more of the other substitute goods (Cooking Oil) and less of this good (Oil). The result is a decrease in the quantity demanded (of Crude Oil)"" (Amosweb).

In other words, an increase in the price of oil we move upward and to the left on the oil demand curve--movement ALONG the Demand Curve.  Cooking oil becomes relatively cheaper compared to oil, so the quantity demanded for cooking oil at a given price increases compared to before the increase in the price of crude oil. Hence, the demand curve for cooking oil shifts to the right, indicating an increase in Demand for Cooking Oil.  Got it??

Rising gas prices create smoking-hot demand for cooking oil
""From California to Maine, thefts of used cooking oil are on the rise — driven by the rising price of oil that makes biofuels more cost competitive with fossil fuels. Like thieves who ransack foreclosed homes for copper wire, higher prices for used cooking oil can attract people with a hunger for crime as well as dinner.
The old cooking oil, which has been used for decades in the chemical and animal feed industries, is now a hot commodity, as biodiesel manufacturers fight for raw materials . Biodiesel is gaining in popularity as a transportation fuel. The largest consumers are fleet operators, including municipal buses and courier firms like FedEx.""
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