Randy Kirk

Oil Looks Toppy - Time to Short?

Oil is highly priced because of the marginal utility of each extra unit of oil. "Why are diamonds, which are frivolous, expensive while water, while necessary for life, is inexpensive?" - Adam Smith asked this -- also known as the Paradox of Value. Economists more or less believe the solution to the Paradox of Value lies in the concept of marginal utility, as each additional unit of water was not valuable, because there was no shortage. If there is a shortage of oil currently, then it makes sense that oil is highly priced since it is significantly price inelastic.