Sunday, April 30, 2006

Just who does rising gas prices affect?

This article from the New York Times examines all the different people who are affected by rising gas prices across the country. I feel that it is a good article to look at as the year draws to a close because it really brings together a lot of different issues in economics discussed throughout the year, including government intervention, consumer elasticity, substitute products, and externalities.
I'd like to discuss the issues with elasticity that arose in the article. Towards the beginning of the article, several different college students and young adults were interviewed and asked how the rising gas prices affected them. These individuals found themselves driving significantly less than they had planned to earlier in the year, and regretting even employments opportunities they had taken. In one case, a young man was thinking about turning down a good-paying job because of the amount of money he would have to pay for gas. These individuals were all finding that their demand for gas was actually elastic as the prices rose, much to their surprise from their attitudes even at the beginning of the year. Towards the end of the article, however, an individual was interviewed who complained about the inelasticity of his fellow commuters in the Seattle area. Rather than cut down their drivig by taking public transportation or becoming involved in carpools, these commuters simply continue to make the hour long commute from Seattle to Bellevue, much to the chagrine of someone who is desperately seeking out a carpool buddy.
Why is their such a difference in the elasticity of these people? I think it goes back to the idea that items which consist a large portion of an indidviduals budget are much more elastic than lower-cost items. For younger college students, a fill-up at the gas pump has signifiant, immediate results. The cost take a larger proportion of our finances than it does of someone with an established career.

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