Friday, October 07, 2005

The price of gas

How much does gas have to cost per gallon before you actually change your driving habits?  Everyone seems to complain about how much gas prices are hurting them, but no one that I have asked has actually changed their driving habits because of higher prices.  Furthermore, in Colorado I continue to see brand-new SUVs (including H2s) driving around with temporary license plates, meaning that they were purchased in the last month or 2; I do not see nearly as many hybrid vehicles with new plates.

This article on Fox News has this statement:

"Every time gas prices go up another 20 cents, you know you see some people making a decision based on that," said Paul Taylor, chief economist for National Automobile Dealers Association.

I would assume that Taylor gets his information based on some sort of data, but I’m just not seeing it with people that I know.

There are some, like Mike Jackson, CEO of Autonation (largest single chain of car dealerships in the United States), that, according to this post on Autoblog, are lobbying for higher Federal taxes on gas to push gas prices toward the $6 per gallon mark.  Why would he want this?  According to the post:

His objective is to fundamentally influence consumer behavior and market demand. He also proposes an energy-tax credit to soften the blow for lower-income groups.

Is $6 where people fundamentally change their behavior?  Let’s consider the fact that gas costs around $6 per gallon in the UK yet there are tons and tons of Range Rovers on the road over there and tons of sports cars that guzzle gas as quickly as H2s.

Currently it costs me about $65 to fill up the tank on my truck.  I get about 15MPG in city or stop & go driving, and about 21MPG in straight freeway driving.  If gas were $6 per gallon, it would cost me $130 to drive the same distances.  However, 80% of my driving is for work, so if gas were $6 per gallon, I would assume that the mileage reimbursement rate would rise commensurately with gas prices as it has done this year, meaning that $6 might not significantly affect my habits.

I remember conversations in Economics classes about the price of milk when studying supply and demand curves.  Although generalized, the basic concept was something to the effect of people not really caring what the price of milk was because they simply had to buy milk.  It will be interesting to see where the price of gas needs to get to before people stop feeling like they have to buy gas.

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