Income and Cross Elasticity

Chart 1

Canada has the second largest crude oil reserve, most of it in Alberta. It is also the third largest producer of gas in the world. As the economy grows, the demand for energy resources, such as oil and gas, increases. The oil and gas industry has the largest share i.e. 54% of the economy in Alberta as chart 1 illustrates.

The state of the industry is improving, even though there is lot of noise about the environmental impact. More money is invested in development and production as long as the price of oil stays reasonably high and the projects remains feasible.

The measurable elasticity of oil and gas demand is inelastic in the short run but elastic in the long run. In the short run, oil and gas become necessities of life and not many substitutes are available. But in the long run, the other technologies like propane, electric and hybrid cars need to be developed to reduce the reliance on oil. Gas-powered power stations needs to be powered with other energy resources or should be converted to wind power or hydro-electric if possible.

Sources:

 “Demand for Canadian heavy crude is soaring”

                Retrieved on Oct 06, 2012 from

http://www.albertaoilmagazine.com/2011/11/demand-for-canadian-heavy-crude-is-soaring

 “ Importance of Oil and Gas Investment in Alberta”

                Retrieved on Oct 06, 2012 from

http://www.finance.alberta.ca/aboutalberta/spotlights/2011-0708-importance-of-oil-and-gas-investment-in-Alberta.pdf