In the long run, the best estimate of the price elasticity of demand for auto fuel seems to be -0.7. That is, a 10 percent rise in prices will reduce gas consumption by 7 percent. Of this, 4 points come from shifting to cars with better mileage, 3 points from driving less.If it's true that there's a widespread perception that gas prices are rising because worldwide demand is outpacing worldwide production--and that this trend will continue for the foreseeable future--then I bet the change in consumer's behavior would be even more drastic.
For example, if I thought that gas prices would increase but soon stabilize, or if I thought that they would eventually come down again, then I might still buy a more fuel-efficient car and drive less, but wouldn't make any more drastic lifestyle changes.
However, if I thought that there was no predictable ceiling on gas prices at all, I might make a more drastic and permanent decision, like moving from the suburbs to the city to eliminate a lengthy commute, or move somewhere with decent public transit options. Moreover, cities would start seeing a demand for more public transit and higher density housing that is closer to places of employment.
So I wonder what the public's perception is as to why gas prices are increasing, and whether they think the trend is likely to continue for a long time.
2 comments:
One thing that confounds this is ethanol. While I doubt ethanol is a sustainable solution to gas shortages, the government and the agricultural industry's promotion of ethanol may lead many to believe that gas prices will stabilize and/or drop once ethanol infrastructure is built up and ethanol output is increased. With that in mind, many may keep hope alive that they can drive their car alone to work everyday, and pay for it later.
One thing that could stave off the rising prices of energy is coal. Coal is abundant in the US, and if car manufacturers switched to electric, they could keep cars running relatively cheaply assuming that coal output matched demand. Of course, coal won't last forever, and increasing its utilization would most likely have some VERY serious impacts on the environment and climate (see China).
Either way, we're screwed as far as world energy, climate, and economies are concerned, it's just a matter of when. And I honestly think things will hit the fan in our lifetime. I'm not trying to be an alarmist, it's reality. UN predictions say that we'll hit 9 billion people by around 2050, which many guess is at or near Earth's capacity for humanity, and at around the same time we'll hit peak oil, and have a global climate crisis. Helter skelter.
Yeah, those are interesting points.
As for the idea that the public might think that ethanol will increase the overall supply of car fuel, I can only wonder if that's true. I would certainly hope not--my understanding is that the reason why ethanol subsidies are such a horrible idea is because it takes so much energy to create the ethanol that you're not even netting much of an energy gain. So if people were proceeding on the assumption that ethanol would save the day for gas prices by increasing the overall supply of energy, they'd be very sorely disappointed indeed.
As for coal, it's a good point--the US sits on an enormous amount of the stuff. And though I think most people would agree that returning to black-smoke-belching coal refineries is not a workable idea because of the environmental damage, people have a funny way of changing their minds about that sort of thing when they perceive their pocketbooks as being directly affected. I hope that when push comes to shove, people choose the environment and innovation over dirty, cheap energy.
As for your third paragraph, though, I'll have to say that I don't share your pessimism. If you simply project today's world fifty years into the future, then, yeh, we're screwed--but the thing is, things change, and they change in ways we can't possibly predict. Who knows what technologies will be produced in the next fifty years, or how the very structures of societies will change? In the mid-20th century, lots of people thought that we'd be struggling to produce enough food to feed the world's population--but that hasn't come to pass because of increases in agriculture technology and efficiency. The point is, the fundamentals of the game can change.
In the end, I'm not saying that we can just sit back and things will work themselves out, like a lot of people (especially conservatives) do. But I do think there's reason to be optimistic about the solvability of these problems.
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