You may have read that the world oil supply will be exhausted in a few decades. In the early 1980s, it was often argued that in just a few years the oil supply would be used for all practical purposes. Fortunately, these predictions are not accurate. However, the idea that we will exhaust all the oil under the surface of the Earth still exists. Due to the climate impact of hydrocarbons or because there are cheaper alternatives, we may not use the remaining oil for some time. Many projections indicate that after a period of time we will run out of oil, based on a misconception of how to assess the supply of oil reserves. A typical method of assessment is to use these factors: therefore, if there are 150 million barrels of oil underground and we use 10 million barrels of oil a year, this way of thinking will indicate that the oil supply will be exhausted after 15 years. If the forecaster realizes that we can get more oil through the new drilling technology, he will include this in his estimate of #1 and a more optimistic forecast of when the oil will run out. If the predictor includes the fact that population growth and per capita oil demand are rising, he will include this in his estimate of #2 to make a more pessimistic forecast. However, these predictions are inherently flawed because they violate basic economic principles. At least not in the physical sense. From now on for 10 years, 50 years from now, 500 years from now, there will still be oil in the ground. Whether you take a pessimistic or optimistic view of the amount of oil that can still be extracted, this will be true. We assume that supply is indeed very limited. What happens when the supply starts to decrease? First, we expect to see some wells dry up, either replacing new wells with higher costs or not replacing them at all. These will cause the price of the pump to rise. When the price of gasoline rises, people naturally buy less; the amount of this reduction depends on the amount of price increase and the elasticity of consumer demand for gasoline. This does not necessarily mean that people will reduce driving (although it is likely), which may mean that consumers switch SUVs to small cars, hybrid cars, electric cars or cars that use alternative fuels. Every consumer reacts differently to price changes, so we want to see everything from cycling to work to used cars filled with Lincoln navigators.