Price elasticity of the consumption of gasoline

May 29, 2008

Data: Gasoline price, household count and median household income (Table H-5), consumption of gasoline

Update (Sept 1st, 2008): image updated to show 2007 data.
Update (Sept 10th, 2009): image updated to show 2008 data.
Update (Nov 2nd, 2010): image updated to show 2009 data.

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6 Responses to “Price elasticity of the consumption of gasoline”

  1. Erel Avineri Says:

    Many studies on elasticity assume that the effects of a reduction in fuel consumption are equal and opposite to the effects of an increase, both for fuel price and income (i.e., they assume ‘time symmetry’). We can see from this figure that fuel consumption in recent years has not changed much the last ten years. This provides some evidence to question the ‘symmetric elasticities’ approach. This asymmetry could be explained by long term elasticities that are generally larger than short term elasticities. Although fuel prices increased in recent years, it takes time for people to become aware of such changes and to be able to respond to them. I recommend all who are interested in understanding fuel price elasticities taking a look at the work of Professor Phil Goodwin and his colleagues:

    Elasticities of Road Traffic and Fuel Consumption with Respect to Price and Income: A Review
    Transport Reviews, Vol. 24, No. 3, 275–292, May 2004

  2. yoramgat Says:

    Erel,

    Thanks for your comment and the reference. I’ll have a look.

    BTW, for some reason the anti-spam filter put your comment in the spam queue – I am sorry for the delay in showing your comment.

  3. yoramgat Says:

    Erel,

    I had a look at the paper. In view of the data plotted in the chart above, I find the conclusions of the paper unlikely. Short term elasticity of .25 and long term elasticity of .6 (where long term is 5-10) years would have been manifested in drastic reductions in gasoline consumption over last few years – these did not materialize.

    The paper was written in early 2003 – the range of gas (or at the authors would call it “petrol” ) price variations since then has increased dramatically. Are you aware of more recent studies?

  4. Daniel Gat Says:

    yorami

    just took a look at this post title and could not access the post that you wrote on the price elasticity of demand for gasoline. How can I access it?

    Dad

  5. yoramgat Says:

    Hi Dad,

    The entire post is the chart. I didn’t add any textual comment. As I wrote in the exchange with Erel, I think the chart is quite enough to refute any claims that the price elasticity of gasoline consumption is 0.25 or 0.6, not to mention larger estimates.

    For context, see a discussion I had with an Australian economist on this matter.

  6. yoramgat Says:

    More discussion of the elasticity of demand for gas in the comments of “The real crisis”

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