As gas goes up, driving goes down

Tuesday, May 27th, 2008

As gas goes up, driving goes down — which should surprise no one:

Compared with March a year earlier, Americans drove an estimated 4.3 percent less — that’s 11 billion fewer miles, the DOT’s Federal Highway Administration said Monday, calling it “the sharpest yearly drop for any month in FHWA history.” Records have been kept since 1942.
According to AAA, the national average price for a gallon of regular gas rose to a record $3.936. That compares with an average price per gallon of $3.23 last Memorial Day.

That’s a 22-percent increase in gas prices leading to a 4.3-percent decrease in miles driven — which might imply a slightly more than 4.3-percent decrease in gas consumption.

Sure enough, the price elasticity of gasoline demand is relatively inelastic, at 0.2. But we already knew that.

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