« Are the best things in life free? | Main | Are we losing scientists? »

January 01, 2008

Do drivers respond to gas prices?

Gas prices continue to go up, but it seems as if drivers just keep driving more and spending more on gas. We know economists claim that as the price of something goes up, people are motivated to use less of it, but is this economic idea not working for gas? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, as in many areas in economics, many factors influence what we do, and it's often hard to ascertain or pinpoint the influence of one factor. But regarding gasoline, careful studies show that people do respond to increases in prices. They do reduce their driving. Rule of thumb is that every 10 percent increase in the price of gas results in a 1 to 3 percent drop in driving. But there are other things that may motivate us to do the opposite, use more gas - for example, increase in income.

"The same studies show that every 10 percent increase in income results in as much as a 3 percent increase in driving. So you have to be careful when you're looking at the net result and not confuse that by singling out one factor. And I think what's been going on recently is that, yes, higher prices have actually motivated people to cut back somewhat on their driving. In the sense that you look at miles driven, they've been going up, but going up slower than in previous years. But you have to recognize that as people earn more money, and on average, people are, that's actually motivating us to drive more. So again you really have to be careful assigning cause and effect here."

Posted by Dave at January 1, 2008 08:00 AM