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Investing and Economics Blog

Gas Price Actually Reducing Driving

You might think that increased gas prices lead to less driving, but historically that has not been the case. Gas demand is very inelastic (or gas prices are very elastic): which means demand changes very little as prices increase.

How much has consumption actually decreased in the face of huge increases in prices? The US government predicts .3% this year: and there is evidence it might actually be declining more in the last few months. Finally a significant reduction in demand may be upon us. Previously the only significant reaction was increased complaints but little change in behavior.

Gas may finally cost too much:

Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration is predicting that gasoline consumption will actually fall 0.3% this year. That would be the first annual decline since 1991.

Related: Bigger Impact: 15 to 18 mpg or 50 to 100 mpg? - Gas Tax - $8,000 Per Gallon (ink not gas) - South Korea Invests $22 Billion in Overseas Energy Projects - The Rebirth of Cities - Traffic Congestion and a Non-Solution - Energy Future - Designing Cities for People, Rather than Cars - Gas Prices Send Surge of Riders to Mass Transit

May 12th, 2008 by John Hunter | | Tags: Economics

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