Bearing Of Price Upon Oil Reserve

IT IS well known that one of the cornerstones of economic theory is the so-called law of supply and demand, which, really, is a group of economic laws, one of which may be succinctly stated : A rise in price tends, sooner or later, to increase supply. It is the fear that, in the case of petroleum, a limited natural resource, a point will soon be reached when supply will not respond adequately to price advances, which in recent years has prompted a movement for oil conservation. This movement has lately taken concrete shape in the appointment of a Federal Oil Conservation Board by the President. An important aspect of the law of supply and demand is that the supply of any commodity is not an entity per se, but is a factor of price. Supply, without the specification of price, has no exact meaning; and in practice supply cannot be divorced from considerations of price. Mathematically, supply may be expressed by the formula SP, which means that supply varies with price, just as the value of 10 raised to the x power varies with x. In its technical usage, supply is the quantity of a commodity that is bought currently on the market at a given price. In the case of a natural resource, however, this quantity will eventually depend not alone on price but on the physical volume of the reserve that exists and. that, in consequence, can respond to the stimulus of price. If this reserve is fixed in size, we must sooner or later reach a point where supply can no longer respond to price in the usual degree and a permanent shortage. will develop which no advance in price can correct, except in so far as higher prices may curtail demand or improve the efficiency of utilization.