Wednesday, January 16, 2008

Counterintuitive data regarding US consumer spending on gasoline

According to the US Energy Information Administration,
"During the third quarter of 2007 consumers spent an estimated 5.7 percent of their disposable income on energy, 2.5 percentage points less than the 8.2 percent share of disposable income devoted to energy expenditures in the second quarter of 1981, when energy consumption spending as a share of disposable income reached its peak level over the last 50 years."

The EIA attributes this surprising fact to
"changes in oil prices and disposable income...a decline in the share of oil-heated homes, changes in the fuel efficiency of home heating equipment and the vehicle fleet, which experienced particularly large improvements from the late 1970s through the late 1980s, in addition to changes in the number of miles vehicles are traveling."
Essentially this shows that demand for gasoline is somewhat elastic.

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