« Yellen: Economy "doing reasonably well" | Main | The NY Times travel section visits my old stomping grounds »
September 9, 2005
Demand curves do indeed slope downward (elasticity does not equal zero)
Hat tip: The Big Picture, who quotes the Wall St. Journal:
Guess what happened as Gasoline prices soared last week? We used 4% less than the prior week -- with a travel holiday included:
Americans used 4% less gasoline amid skyrocketing pump prices last week than they did the week before Hurricane Katrina hit, the federal government reported. But whether that indicates consumers have decided to conserve or merely that they couldn't find all the gasoline they wanted isn't clear.
A commenter at The Big Picture writes that the price went up considerably more than 4%, so it would seem that the short run demand for gasoline is still fairly inelastic. But the elasticity is not zero. People respond to incentives.
As Tim Shaughnessy writes at Division of Labour:
I pass a Diamond Shamrock (DS) and a Chevron station on my way to school. I told my class the other day I was a bit confused why the Chevron, with its cheaper gas, never seemed to have many customers while the DS, with its more expensive gas, had a lot. I thought I was clever when I pulled into Chevron this morning to fill up. Nope! Little plastic bags over the nozzles (not visible from the road, BTW) and the lady telling me they were out of gas. So I grumbled my displeasure and filled up with more expensive but plentiful gas down the street.
Now I can relate to my parents' buying gas in the 70s (I didn't get to kindergarten until 1980, so I don't remember the gas lines). Which made me more upset? Buying plenty of more expensive gas or buying zero gallons of cheap gas?
See also James Hamilton's post today with many good links.
UPDATE: More econ blogs are picking up the "demand curves slope downward" theme. No wonder. It's a central idea we teach. Nice to see it in action, though it's often presented as being somewhat surprising. But people do respond to incentives.
For more, see: A Constrained Vision, SCSU Scholars, Econbrowser, and Calculated Risk.
Posted by William Polley at September 9, 2005 8:48 PM
Trackback Pings
TrackBack URL for this entry:
http://www.williampolley.com/cgi-bin/mt-tb.cgi/342