THE STUDY MARCH 30, 2011
Speaking at Georgetown University today, President Obama warned that thanks to rising demand from developing countries like India and China, the long-term trend of gas prices would be upward. “This is something that everybody is affected by,” he warned. But America has faced energy crises before, and by one important measure, it appears we are less willing or able to respond to higher gas prices.
According to research by UC Davis's Jonathan Hughes, Christopher Knittel and Daniel Sperling, Americans are now less responsive to increases in gas prices. In the late 1970s, a ten percent rise in the cost of gas would lead to about a three percent decline in the amount of gas consumed. In the early 2000s, on the other hand, gas prices would have to rise about 60 percent to provoke a similar decline in gas consumption. The researchers theorized that this might be because spending on gas is now a smaller fraction of total monthly income or because cars get better mileage now, meaning that cutting back on driving saves less gas than it would have in the 1970s. But either way, their research suggests that even if gas prices go higher, we’re unlikely to see Americans buying substantially less gas.
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(Post edited to clarify last sentence. Americans will still reduce their gas consumption, but not by nearly as much as they would have in the 70s.-AH)