[OT] Gas companies report record profits (old energy thread)

Ross Werner ross at agilestudios.com
Mon Jan 30 14:44:54 MST 2006


On Mon, 30 Jan 2006, Tyler Strickland wrote:
> When gas companies raise gas prices, I don't have much say in the matter.
> I still have to drive my 90 miles every day.  I can't trade in my truck
> for something with better gas mileage, both for utility and financial
> reasons.  For me, and I suspect for many other people and companies, there
> is no choice.

Regarding the inelasticity of gas, I think in the short term it is nearly 
perfectly inelastic, but in the longer term it is far more elastic. (Still 
probably one of the most inelastic things in today's market, but not 
anyway near vertical.)

In the long term (say if gas went up to $5/gallon and stayed there for 
over a year, and showed no signs of ever coming down) people would:

(a) start to purchase vehicles that got better gas mileage [for people in 
situations similar to yours, Tyler, perhaps it would become cheaper to 
have two cars--a "commuter" car with great gas mileage, and an SUV for 
non-commuting tasks--than to drive the SUV everywhere]

(b) tend to live closer to their work [it might become cheaper to move ten 
minutes away, or on a direct bus line, than to pay a large amount of money 
to support an hour commute]

There are probably lots of other ways that people's gasoline consumption 
would change given a long-term significant increase in price, but those 
are just a couple of the big ones that, I think, illustrate why gas prices 
aren't inelastic over the long term (at least three to five years).

 	~ Ross



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