The length of time that people have to respond to price changes also plays a role. A good example is that of gasoline. Suppose you are driving across the country when the price of gasoline suddenly increases. Is it likely that you will sell your car and abandon your vacation? Not really. So in the short run, the demand for gasoline may be very inelastic.
In the long run, however, you can adjust your behavior to the higher price of gasoline. You can buy a smaller and more fuel-eficient car, ride a bicycle, take the train, move closer to work, or carpool with other people. The ability to adjust consumption patterns implies that demand elasticities are generally higher in the long run than in the short run.
Samuelson, Paul A (2009-04-08). Economics (Page 66). Business And Economics. Kindle Edition.
First, consider this chart:
Look at this chart as a time series; start with the line at the far left, move to the right and than when you reach the farthest point on the right, go back and start with the red line. Put another way, gas prices have been high for about a year -- and that's before we take the 2008 price spike into consideration,
Dropping demand.
4 comments:
I've been following this for some time, and as is often the case, there are multiple causes working together.
A big part of this seems to be that younger people aren't into driving as much as their counterparts were in the recent past.
http://www.huffingtonpost.ca/2012/04/08/fewer-young-drivers_n_1406881.html
http://www.sltrib.com/sltrib/world/53864212-68/driver-percent-share-among.html.csp
http://adage.com/article/digital/digital-revolution-driving-decline-u-s-car-culture/144155/
http://moneyland.time.com/2011/12/08/fewer-teenagers-have-drivers-licenses-because-of-gas-prices-and-the-internet/
This has been going on for some years now, but has only gotten big play since the Advertising Age article came out a couple of years ago.
Not mentioned in most articles on the subject is that an activity that was once fun has now become a chore. It used to be you could enjoy a nice ride in the country, and it didn't take too long to get out on some rural road and just tool along, windows down, in some cases the roof down, and enjoy the smells and sounds of the country. Others were able to cruise on a Friday or Saturday night. But with traffic becoming what it is, and driving licenses becoming harder to get, and in some cases with police "harassment" of younger drivers, well, the joy is just out of it. Driving is also so common nowadays, it's not a big deal. I can imagine younger people saying, "What's the big deal about driving? My grandma drives, and she drives like a grandma, too."
I've been seeing this myself for a bit over 20 years now.
At that time there was a big debate about building a new 4-lane road to replace an older road that dates back to the 1920s. This is in an area that is in the suburban orbit of Washington, DC, and in fact, the town I lived in for many years was at the outer end of a rail commuter service.
I was among the people who disputed the wisdom of the highway department. My argument was to take a look at what happened in the Washington area and Northern Virginia. Why repeat those mistakes? Can't we at least be original enough to make some of our own? My suggestion was that we should look at a lighter version of public transit, specifically a (relatively) high speed trolley line, a modern version of what has been called an interurban. (Disclosure: I am a rail enthusiast, and must admit to a touch of prejudice.)
I also put together a cost study of this proposal, using material from the highway department for things like the cost of moving dirt, and utilizing other sources for the cost of building the track, signal system, and electric power system. For my trouble, I was told I was trying to take people's cars away, was trying to bring back the horse and buggy, and was accused of being a Communist!
What stood out was the age distribution of the comments. Those who like the trolley proposal were either under 40 or over 70; those who hated it were mostly between 40 and 70.
I was a member of a civic organization at the time, as was a marketing man who worked for Amtrak. I brought this up for him, and he stated his marketing department had noted the same thing.
The road took a long time to get built; everyone got older. The low-end age break moved up to 50, to 55, and I currently estimate it to be a bit over 60, perhaps around 62. I assume the high end break moved up as well, which would put it at about 90 or a little over.
What we are looking at is a pair of generational breaks. Why are they what they are?
I think it has to do with when people come of age. If you talk to a psychologist, he will tell you that when you are about 20 or so, give or take a few years or so, your view of the world tends to crystalize. You decide about who you are, where you fit in the world, and among other things, what the future should look like.
For the older crowd, over 70 before and over 90 now, we are looking at a group of people who remember the country as it was before the Interstate system, before McDonalds and the Holiday Inn chain. There is much that they wish had stayed from that time, and are sorry it has gone away.
The younger crowd--under 40 before, under 60 now--has grown up in an era of environmental awareness, an era of at least semi-regular tensions from oil pressures, a couple of oil wars, and gas prices never under a dollar a gallon. As noted above, this group doesn't see a car as particularly desirable.
The group in the middle would have been coming of age between about 1950 and the first oil crunch of 1973. The future to them would have looked something like a TV show called "The Jetsons." Take a look at that old cartoon, and take note that you don't see trains or trolleys or anything like that in that vision of the future.
Basically, the era of people who thought driving was the absolute future in transportation are getting older and retiring, and dying, too. The younger crowd is wanting to go in a different way.
At least, that's how I see it.
In my opinion, this is still a little early to absolutely state this is the case, but I've been seeing it for some time, and some others are seeing it, too.
Hope this answers your question, at least partially.
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