Consumer behavior and $4 gas: an economics case study

Lynne Kiesling

Yep, I’m gonna pile on here with my friends at Environmental Economics and other places about how consumer responses to $4 gas are manifesting themselves. To quote John (whose post is about SUV markets in particular):

1. Gas prices rise
2. People drive less
3. Gas prices stay high
4. Demand for new SUVs falls
5. Prices of new SUVs fall
6. Supply of used SUVs rises (and demand falls)
7. Prices of used SUVs fall

From Grist, here’s a synopsis of several news stories (with links) on the consequences of these individual behavioral responses to higher gasoline prices:

New numbers show that Americans drove 4.7 percent less in June 2008 than they did in June 2007, shaving off some 12.2 billion miles. For those keeping track at home, that makes a total 53.2 billion fewer miles driven between Nov. 2007 and June 2008 than in that eight-month period a year earlier. As would be expected, gasoline and diesel use have also fallen: In the first three months of 2008, Americans burned 400 million fewer gallons of gas than they did in the first three months of 2007, as well as 318 million fewer gallons of diesel. And easing off the gas pedal has eased oil demand as well: In the first half of 2008, U.S. demand for oil fell by an average 800,000 barrels per day compared to the first half of 2007, the biggest decline since 1982. Not to be left out, sales of cars, trucks, and vehicle parts fell 2.4 percent from June to July.

The biggest decline in oil demand since 1982. Yowza. This is indeed a textbook case of how response to price signals changes behavior and ripples through our complex, interconnected global economy, communicating valuable distributed information, reallocating resources, and changing investment decisions along the way.

Well, that was fun …

Lynne Kiesling


Last Thursday I was in New York at the final show of the reunion tour of my favorite band ever, at a big party with a bunch of folks who were also there courtesy of the world’s greatest drummer. If you look carefully behind Andy’s head in the picture above (taken from my 10th row center seat) you can see evidence of the guerrilla insurgency fan project and inside joke with said drummer, in which I’ve been participating for the past year, with much resulting joy and happiness.

It’s been a much-needed mental and emotional respite from the cacophonous events of the past year and a half here at KP. But I have to admit that all of the writing, teaching, new course prep, workshops, conferences, house renovation, cycling, travel, music, and so on have left me feeling really shagged out, which is why I’ve been letting Mike do the heavy lifting around here off and on over the summer. So the past couple of weeks have been about taking some down time, as well as the trip to New York, and about getting ready for the sprint triathlon in which I’m participating on Sunday.

I plan to get back into a higher-energy groove here! Stay tuned …

The inverted metamorphic triple-junction solar cell and other energy items in the news

Michael Giberson

  1. Solar power technology continues to improve.
  2. Retail electric utility rate for 100% wind power dips below the standard rate. Likely just for one month, since gas prices are down from their recent peak.
  3. Texas retail market under pressure, but shows signs of progress. A well-capitalized firm with an understanding of risk management issues will do fine in the Texas retail environment.
  4. Five years after a few poorly trimmed trees, some over-active transmission line relays, a computer malfunction and a lack of awareness by utility staff led to the largest blackout in U.S. history.