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December 18, 2007
Inelastic gasoline
Today's howler is from CNN/Money:
Gasoline is one of those items that some economists consider "inelastic," that is, people will buy it no matter what the cost. But the recent drop in demand puts that into question, and suggest people will cut out unnecessary trips if they are too expensive.
As I try to tell my students, a good or service is not elastic or inelastic--the demand for or the supply of it is. Second, inelastic demand doesn't mean that people will buy it no matter what the cost--budget constraints ensure that eventually the curve slopes back to the left as you go up higher in price. Third, if you want to get really pedantic, it's not a drop in demand, but a drop in the quantity demanded as this is a change induced by higher prices (caused by increased input costs which reduced the supply). Fourth, one should consider short-run vs. long run demand for gasoline since it takes a while for habits to change.
When I read that I had flashbacks to grading exams.
No wait, I did not grade any exams this term that packed this many errors into two sentences. My students are better than that.
Posted by William Polley at December 18, 2007 9:22 PM
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Comments
Congratularions, Excelent Blog William...
keepingi in touch, Carlos
Posted by: Carlos at December 19, 2007 8:21 AM