Little I knew that elasticity of supply could explain the seeming irrational swings in oil prices. Especially considering that economics was the first course of the MBA… it was one of the first “aha” moments.
Today I realised that along with price and income elasticity, there is also the weather elasticity of demand and probably many more types of elasticity. Its (actually was) sunny in Belgium today… the temperature may have hit around 13C and while I was having my burger in an empty quick restaurant, I saw at least 15 people enjoying a cone of ice-cream outside… I guess it is different from mere seasonal demand if there is a correlation between the changes in demand based on change in temperature. I wondered if this type of demand is fully exogenous to an organization because obviously the weather cannot be controlled like price. But then, I think about Coca-Cola or Pepsi and they have figured a way to sell the drinks, at least in the western world, irrespective of whether the temperature outside is -5C or +15C…
Now, something more interesting… although, we know that the earth will eventually face the apocalyptic freeze due to the global warming… at least for the next 30-50 years, it is safe to assume that the temperature will rise. I wonder if this means Coca-Cola and Pepsi will sell more! Is it a good hedge to holding oil stocks in a portfolio!
Yeah… its nice to be silly sometimes :)