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February 02, 2009

Gas prices and fuel economy

When gas prices hit $4 a gallon last year, there was much speculation about how consumers would be motivated to buy more fuel-efficient cars or even how drivers would make changes to get more miles per gallon from their existing vehicles. But do we now have any hard numbers giving us the degree to which this really occurred? Listen

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

"Well, we don't have any numbers from last year - it's simply too early to do a good statistical study - but we do have a study that looked at how drivers responded in terms of their fuel efficiency to changes in gas prices. This study spanned the years 1997 to 2005, and actually one of my colleagues here at N.C. State was part of that study. And what the authors did, they looked at two different time periods. They looked at the immediate impact on fuel efficiency from, for example, higher gas prices. And then they looked at the longer run impact. Immediate impact was actually very small. The authors found that for every 10 percent increase in the gas price, fuel efficiency would be improved by less than 1 percent. But over the longer run - that is, over several years - they found that every 10 percent increase in the gas price led to a fuel efficiency gain of 2 percent. That's actually in economics very, very significant. So what we would expect is that if gas prices rose and stayed high, that would lead to even more improvements in fuel efficiency over time. Unfortunately, these gains can be undone if gas prices fall."

Posted by Dave at February 2, 2009 08:00 AM