Want to Drive?

by @jehiah on 2005-09-01 03:43
Filed under: All

I wish I was in economics because the stage is set for a perfect thesis.

For years I have said "It will not be until the price of gas reaches $3 a gallon that people will consider changing their driving habits". Now that time has come and that is coming to pass. There is talk of gas on the east coast going from $2.80 (yesterday) to somewhere around $3.50 ~ $4.00 shortly and possibly staying there for a period of time measured in months.

Before I get into a few of my thoughts on the matter - here are a few important links

For along time (my entire life) gas in the US has been a fascinating topic in economics because it has had a virtually inelastic demand regarding pricing - that is : any pricing we have seen up till now. As I have long believed we are about to see the beginning of the demand curve as gas passes the $3 point. As with all curves change will be gradual and I don't believe it will be very noticeable until prices pass $3.50 or $4.

That isn't thesis worthy though. There is another aspect that influences demand - the perceived spike. A change in price that is perceived as a temporary spike - rather than a permeant change - will be less likely to impact driving habits. Is one or two months long enough to change anything? I think so but it would pale in comparison to a 6 month change. At $4 a gallon I know many people that would begin to seek out a carpool - even among strangers.

Public Transportation take note : this is your queue. Part of the appeal of Public Transportation is that it is more efficient and it distributes the cost among more individuals. However - in general - the costs of running a public transportation system are pretty static and do not change with regard to usage of the system. This is their queue because as usage increases (note the optimistic attitude) it allows for usage of extra income (potentially a significant amount) for adding extra capacity and lines to help retaining the usage levels by increasing convenience even after gas prices have receded. Buses are an easy way to add capacity so I will not be surprised when additional lines/services/schedules are added.

Oh... and go buy a bike ;-)

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