On Mon, 30 Jan 2006, Tyler Strickland wrote:
When gas companies raise gas prices, I don't have much say in the matter.
I still have to drive my 90 miles every day. I can't trade in my truck
for something with better gas mileage, both for utility and financial
reasons. For me, and I suspect for many other people and companies, there
is no choice.
Regarding the inelasticity of gas, I think in the short term it is nearly
perfectly inelastic, but in the longer term it is far more elastic. (Still
probably one of the most inelastic things in today's market, but not
anyway near vertical.)
In the long term (say if gas went up to $5/gallon and stayed there for
over a year, and showed no signs of ever coming down) people would:
(a) start to purchase vehicles that got better gas mileage [for people in
situations similar to yours, Tyler, perhaps it would become cheaper to
have two cars--a "commuter" car with great gas mileage, and an SUV for
non-commuting tasks--than to drive the SUV everywhere]
(b) tend to live closer to their work [it might become cheaper to move ten
minutes away, or on a direct bus line, than to pay a large amount of money
to support an hour commute]
There are probably lots of other ways that people's gasoline consumption
would change given a long-term significant increase in price, but those
are just a couple of the big ones that, I think, illustrate why gas prices
aren't inelastic over the long term (at least three to five years).
~ Ross
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