What is Demand Destruction?
Demand destruction is an economics term based upon permanent or sustained high prices during what is likely demand pull inflation.
Demand destruction occurs when prices are so high that consumers seek alternative products or services.
For example, one of the reasons we currently have such high inflation is that there is a tremendous backlog in oil refinement.
Because of this, gas prices have hit an all-time high. Since gas prices are so high, consumers are seeking out immediate, short-term alternatives. Demand for gasoline has hit a low not seen since 2013, 2020 pandemic shutdown notwithstanding.
If prices persist at these rates consumers will make longer term decisions such as switching to electric automobiles as an alternative.
By switching to an electric vehicle, that consumer would therefore be a participant in demand destruction as they would no longer demand gasoline again.
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