A 50% price decline doesn't imply there's 50% less demand for petroleum. If 6% less demand is all the margin consumers need to get their supply, then price can drop quickly. It's all in the margins.
Making the price go up 10x won't cut consumption by 90% though, maybe only 50%. Trades still need to get to the job, food still has to get delivered to stores and some people who make huge salaries will still drive to work.
During the pandemic fuel demand didn't go down by 50% and yet the price dropped dramatically. Sure office workers stayed home but that's not 80% of the jobs. Think about how much the gas price dropped vs how much traffic was still on the streets. It almost certainly wasn't a linear relationship.
If it takes 100 tourists to pay his bills, taxes, staffing, and other expenses for the day, the next 5 tourists represent the profit. A tourism decline of 10% doesn’t mean 10% less profit, it means the catastrophic inviability of the whole business as it’s currently structured.
In reality most business can do things like cut hours for staff, postpone upgrades or long term maintenance, cut amenities, raise prices etc…
If most businesses were structured in a way that a small decline in customers immediately puts them out of business, any minor economic downturn would be an unrecoverable positive feedback loop for the economy.
I’m not saying a 10% drop won’t put a lot people out of business, but it’s not as much of an existential crisis for the economy as a whole as that story makes it seem.
No business chooses to be structured this way.
They also cannot do much about fixed costs; postponing maintenance typically increases long term maintenance costs; postponing upgrades, cutting amenities, and raising prices may deter even more customers (keep in mind, nearly everyone is feeling the pinch these days). That is assuming that the business isn't doing that already.
But it’s wrong to model businesses as if they have no ability to increase profit per customer and predict catastrophe from minor reductions in customer traffic.
They can and do figure out how to do more with less.
look up the history of why the fed exists and you’ll see why we have ‘small’ downturns.
Most small businesses fail because they were never serious businesses to begin with. A business closing down after running for a year with no profit isn’t relevant.
You have a given amount of demand, you fill your knapsack using a simple greedy strategy. You pick the lowest bid, then you pick the next lowest bid and so on, until the knapsack is full.
Now the question is, why is everyone paid as much as the most expensive bid that was needed to fill the order? Because those bidders could simply predict what the most expensive bid is and then set their bid accordingly, if their prediction is too high, you actually made electricity more expensive by not paying everyone the same clearing price. If their bid is too low they get free money simply by predicting a higher price.
So you can just make the system honest and pay everyone the equilibrium price.
Of course, the big question that arises is "what if the last producer needed to clear the market is unreasonably expensive?", then there is suddenly a windfall for all the cheap producers called producer surplus. The opposite is also true when you get rid of these expensive producers, the price collapses down to the second highest bid. This is consumer surplus.
In reality you have two huge players who can cut production at will and set prices based on the least efficient small fish in the pond.
Enjoy your free market
Keyterms: "marginal cost", "merit order", "market-clearing price".