Gasoline prices have been declining – steadily – for a few weeks now. While that gives some respite to politicians who’ve been sweating the effects high pump prices might have on the November elections, the big question – why are prices falling? – seems beyond most news reports.
Over at FEE, Prof. Peter Jacobson writes that what we’re witnessing is a fundamental economic principle playing out in real time:
…a principle called the second law of demand which states that people are relatively more responsive to price changes in the long run than in the short run. Economists call this responsiveness “elasticity”.
Or, as the late and great economist Walter Williams put it, “demand curves are relatively more elastic in the long run than in the short-run.”
What does this mean in plain English?
To begin, gas prices increase substantially. It’s too costly for people to substitute their gas usage in the short run. You still need to drive to your vacation, work, or church the next day if gas prices go up. But, as more time passes, there is more ability to cheaply discover alternatives like bus routes, carpool situations, financing for electric cars, or telework options.
In the case of vacations you could substitute your RV trip with the “staycation” option, which is growing in popularity, given you have time to plan.
Then, as more people substitute these options for gas, gas stations face a new lower demand. Again, this doesn’t occur immediately because it’s costly to make these substitutions in the short run.
In other words, people respond to prices. Not immediately, in the case of gasoline. But over time. And those individual choices – even if it’s as simple as saying “I’ll only make one trip to the grocery store from now on instead of two” can add up to move prices across the market.
That’s very powerful stuff. But it’s not immune to governments, which have a habit of distorting markets through taxes, regulation, tariffs, industrial policy and old fashioned graft.
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Gas price NOT that low in CA
Maybe someone ought to ask Biden how and when is he going to put the nations oil reserve back. Also, why in the world, of all countries, would he send some of it to China? That country is out to destroy us, and Biden seems to be helping them.
Its pay day (with our tax dollars) for China Joe who was compromised before he run the worst campaign election EVER in 2020. A big reason why it seems so strange 81 million votes when he couldn’t even fill 8 circles with people. So our reward is shut down pipe lines and ship OUR RESERVES to CHINA. We still own America because X-Jinping can’t own people or our minds so don’t give up the ship! This battle is not finished until we WIN that the AMERICAN WAY!
The reason is to trick you. Blaming Putin for high gas prices when it’s not him but Biden ….then Biden brings the prices down to show his …ahem…strength…and commitment to help the nation with his real agenda is his sneaky way to control us…giving. People (false) hope that Biden is there for them when that’s the furthest from the truth. Soon after midterms the prices will rise.