Sunday, October 30, 2011

Nice graphic showing Americans are driving fewer miles... In general this is good, but maybe it is for the wrong reasons..

Number of the Week: Cutting Back On Driving

4.6 Billion: How many fewer miles traveled by drivers on U.S. roads in August than a year earlier:
Source: WSJ

These two graphs/charts don't synch up exactly, but you can see the direct relationship between the demand for gasoline and the miles driven over time.  The independent variable of course is the price of gasoline.

It is generally accepted that consumer demand for gasoline is relatively inelastic. This means that the percentage change in demand for a good is LESS than the percentage change in price.  In other words, consumers do not dramatically change their quantity demanded for a good when the price of the good changes.

In the case of gasoline, this is especially true when the price increases.  There is no immediate subsitute for gasoline in the short run---gotta have what you gotta have to satisfy how you have organized your life, job or business around, well, getting around.

This article and graphs suggest that the demand for gasoline has become MORE elastic in the last few years.  In other words, relative to previous gas price hikes, the percentage change in quantity demand for gasoline now is greater relative to the percentage change in quantity demanded for gasoline in a previous time period.  People are quicker to change behavior or have developed coping mechanisms the serve as subsitutes for consuming more gasoline:

""When gasoline prices started shooting higher earlier this year, U.S. drivers throttled back much more quickly than they used to in response to price increases. One reason why might be that the 2008 energy price shock is a recent enough memory that it’s easy for people to conserve. They still have the phone numbers of their old carpool buddies handy, and they know where the bus stop is. What’s more, with so many scarred by the recession and scared by the jobless rate, people seem quicker to cut back in response to price increases not just at the gas pump, but of any kind.""

It is certainly desirable for the country as a whole to consume less gasoline (hence oil) and drive fewer miles. However, the best way to achieve that is not through recession and economic hard times.  Improved transportation infrastucture, fuel effeciencies, and better consumer decision making would be far more preferrable.

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