Georg,

Your right, people did not react to the price increase.  Demand for
gasoline hardly decreased.  That is what I message I was hoping to convey,
and I guess I didn't.  

The price of gasoline relative to other prices did increase alot here in
the U.S.  By something like 30% or so.  However, despite this large
increase there was only a very small decrease in demand.  It isn't that
incomes are so high, but that the demand curve is so steep, at least in
the short run.  Further, if it is percieved that such a price increase is
only temporary you would not see many fuel economizing measures.  If it
were a permanent increase you would see more of these types of measures
(greater fuel efficiency, maybe more car pooling, use of public
transportation, etc.).

Perhaps it might help to consider the extreme case of a perfectly
inelastic good.  In such a case the demand curve is vertical.  That is,
for any price the amount of the good purchased is always the same (note
only the price varies, changing income would change the location of the
demand curve).  Now, gas is probably not perfectly inelastic, but in the
very short run I'd imagine it is very inelastic.

Hope I was more clear.

Steve



--- Georg Tamm <[log in to unmask]> wrote:
> > I imagine there are similar circumstances here in the U.S.  The recent
> > spike in gas prices has given us an opportunity to see how elastic
> demand
> > for gasoline is here in the U.S. and the answer is, it ain't very
> elastic.
> >  Despite a sizeable increase of gasoline at the pump demand was not
> > reduced by that much.  So at least in the short run, an increase in
> > gasoline prices would have little impact.
> > 
> > Steve
> 
> Is it possible seriously speak about any "spike in gas prices" in US
> anyway ? Just to compare - if your average income per capita is ~7-8
> times than here (Estonia + other baltic states, previous SU), and your
> gas price is anyway (with all "spikes") a half of ours - it seems me
> hard to imagine people there react at all ? And here people still
> believe they are living quite well...
> 
> Maybe it reveal some elastic, if gas taxes in US were about 15 times
> higher? I believe you might survive pretty well...
> 
> sincerely Yours reader with interest,
> Georg Tamm
> (writing MA thesis on enviroethics/sociology)
> 

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