Re: Inflation
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Of course, you can also reduce your driving. So it's really a question of what consumers will do less of. In theory, they should buy less because oil prices are higher. If their driving is essential, and their demand for gas is highly inelastic, then they should by about the same amount of gas, pay more for it, and have less left over for other things.
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Very good point here. Gas is highly elastic in the long run, but in the short run its usually highly inelastic untill people adjust their behavior. People will defiantly start driving less and conserving more, which will bring the price back down. However the refinery problem is huge and I'm not sure how that will affect us long term, it very well could move the demand curve into a more inelastic state.
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