Gasoline prices add 9/10 at the margin

A Gas Price That Might Matter

Mar 5, 2012 • Demand, Supply, and Markets, Developing Economies, Economic History, Environment, Households, International Trade and Finance, Macroeconomic Measurement, Thinking Economically, Uncategorized • 227 Views    2 Comments

Is it $4.11?

Although gasoline prices are rising, consumers have not altered their driving habits. Economist James Hamilton suggests that the tipping point tends to be when prices exceed the highest point during the past 3 years. That number is $4.11 or $4.27 if we account for inflation.

Currently, the average price per gallon of regular in the U.S. is $3.72 while Wyoming has the cheapest gas at $3.16 and California has the most expensive at $4.33.

Looking beyond our borders, though, $4.33 can seem pretty low.  For these countries, fuel taxes elevated prices. (March 2011 data)

  • U.S.: $3.59
  • Istanbul, Turkey: $9.63
  • Oslo, Norway: $9.27
  • Athens, Greece: $8.50
  • Amsterdam, Netherlands: $8.01

 

On the other hand, subsidies can make the price per gallon of gasoline pretty low:

  • Caracas, Venezuela: $.06
  • Riyadh, Saudi Arabia: $.45
  • Doha, Qatar, $.88

For 170 countries, these graphs are ideal except that the data is for 2010.

Finally, where are we historically? Going way back to 1919 when the price of gas was close to 25 cents–the equivalent today of $3.35–this graph provides a fascinating picture of where gas prices have been. At all time highs now, real prices were slightly lower when they peaked during 1981 and 2008.

The Economic Lesson

Observing the impact of gasoline price swings on consumer purchases, economists cite our elasticity. If price changes a lot and the quantity we buy remains almost the same, as with medication, then our demand is inelastic. By contrast, if price changes have a big impact on buying, then our response is elastic.

An Economic Question: If, at $4.11 per gallon, we start to buy a lot less gasoline, then how might you use elasticity to describe the change in our buying decisions?

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  • http://www.sampack.com Used Cars Dallas

    Elasticity all depends on the individual; some people have more money than others. It depends on priorities too; some people will rather buy nice clothes but eat Top Ramen. Too many variables involved.

  • matsudae12

    As gas prices near three-year highs, Bernanke should subsidize local oil drilling so more money can be put into the economy through American jobs.

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