Consumers are far more aware of gas prices than they are of practically any other commodity. Gas prices fluctuate frequently, and widely; and they’re plastered on signs along highways and major intersections.
So it’s no surprise that high gas prices are getting so much attention. Gasoline prices in the Northwest have doubled in the last 5 years, both local and national politicians have started to get exercised about them.
There are a few things worth noting about this.
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First, the rise in gas prices isn’t due just to supply scarcity, but also to the fall in the dollar against other major world currencies. Gas prices in Europe have barely budged in recent months, even as prices in the U.S. have skyrocketed. This fact highlights yet another risk for a petroleum-dependent economy: not only are northwestwerners vulnerable to supply shocks and global political instability, but we’re even vulnerable to fluctuations in the value of the dollar. All of these are factors that are completely out of Northwesterners’ control. And since we produce no petroleum on our own, these are all risks that tend to siphon money out of the local economy.
Second, higher gas prices haven’t markedly reduced consumption. This is consistent with economic theory: gasoline’s short term “price elasticity” is low. Over the short term, a 10 percent rise in gas prices only causes consumption to fall by 1 to 2 percent—most people don’t have the flexibility (or the will) to change their driving patterns. Only if gas prices see a sustained rise—one that consumers believe is going to stick—do people start to make different choices that save fuel, eveything from combining trips, to using public transit where available, to purchasing more efficient cars, to changing where they live so they can drive less (which is perhaps the biggest fuel saver of all). Judging by the modest declines in per capita gas consumption in the Northwest in recent years, people are still betting that gas prices are going to start falling soon. And they may well be right.