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.
