Inelastic Demand

This week’s Business Week has an article (“Can’t Stop Guzzling”) that suggests that higher gas prices are NOT reducing driving, except perhaps among lower income drivers. The Oregonian’s Jim Mayer finds the same effect looking at vacation travel in Oregon.

One theory I’ve heard before is that changes in driving behavior will only occur if there are very sudden and dramatic increases in price – slow changes will just “boil the frog to death” slowly.

Which calls into question the idea that market mechanisms will cope with Peak Oil. If we don’t get behavior changes until we have dramatic scarcities, the adjustment is going to be very painful.

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