How (in)elastic is your demand for gasoline?
Ok, we know that rising prices tend to cause people to buy less--the question is: how much less? Consider gasoline. We've all seen the rising (nominal) price of gasoline at the pumps over the last year or so. If the demand for gasoline slopes downward, then we should be curtailing our consumption of gasoline. Have any of you cut back on your purchases of gasoline? Have you taken fewer trips to the grocery? Are you carpooling more frequently? Have you shifted over to a more fuel efficient car? If you haven't cut back, perhaps it's because the real price of gasoline hasn't changed much over the last few years. In fact, the real (inflation-adjusted) price of gasoline has fluctuated between a narrow range over the last 20 years or so.
Most econometric studies of gasoline demand put the short run price elasticity somewhere in the range of -0.40 to -0.6, making it inelastic. Longer run estimates result in higher elasticities, suggesting that consumers are more price sensitive if given enough time to react and conserve.
2 comments:
I noticed the price of gasoline went up alot. But it didn't change my buying behavior. I think if i can afford it, then i will buy it. If the price change just within 1 dollar, I will not change the way i drive. but if it goes up to 10 dollar a gallon, I will change my behavior. Overall, the opportunity cost for less driving or carpooling is the convinience i lost. I would rather pay fews cents more and drive my own car to anywhere i want.
In my opinion, this is the perfect subject to understand the demand curve. If gas was 10 cents a gallon, 20,000 people(from an entire small town) would buy it. If it shot up to 1 dollar/gallon, only 10,000 people might buy it. If it goes to 2 dollars a gallon, then only 5,000 people may buy it and if it goes to 5 dollars a gallon maybe only 500 people will buy it depending on his pr her income or his or her need for driving.
As for myself, I haven't stopped buying gas; however, I don't go to Parkersburg to see my friends as much as I did the previous summer. They share some of the burden and drive over here sometimes. Car travel is so convenient and quick, I always think that there will be at least one person to pay the price no matter what.
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