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09/22/2005 Archived Entry: "Elasticity is where you find it"
I keep hearing about how the demand for gasoline is "inelastic" and thus subject to price gouging. I can appreciate the argument, since much of my family lives in rural areas where there is no public transportation -- the automobile is a necessity. Yet even there, the price signals of the free market work, and human ingenuity creates elasticity, as a recent chat with my father indicated.
My father's old car was sitting idle, waiting to be sold. He drove my stepmother's old car about 2 miles a day; she drove her new minivan about 40 miles a day, and my stepsister drove her new monster SUV about 60 miles a day. Then Katrina hit.
My stepsister (with the longest commute) now drives my father's old car. My stepmother (second-longest) drives her old car. My father (shortest commute) drives the minivan. And the SUV sits idle. I'd hazard a guess that they've cut their combined gasoline consumption by 40%.
This is how the free market promotes conservation.