Elastic Gas
I don't know about you, but I've been spending my holidays reading papers about the price elasticity of demand for gasoline. Wait, where are you going?
Listen, I'm sure you've heard this before: "It doesn't matter if we tax gas, people won't change their behavior." Or: "Gas prices go up and down, but people keep using just as much."
So here's what's interesting about my Yuletide reading: these claims just are not true -- not at all! Over the long run -- usually meaning longer than a year -- a 10 percent increase in gas prices results in a decline in gas consumption of around 6 or 7 percent. (This is what economists call the "price elasticity of demand," or just "demand elasticity" if they're feeling hip.)
Now, it's certainly not a one-to-one correlation, but the connection definitely exists and it's much stronger than most people think. Interesting, right? I'll get into the details below the jump.
And hey, is that mistletoe?
