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Comments on: The demand curve slopes downwards – New Zealand petrol edition http://www.tvhe.co.nz/2008/02/25/the-demand-curve-slopes-downwards-%e2%80%93-new-zealand-petrol-edition/ The Visible Hand in Economics Fri, 18 Apr 2008 05:19:04 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Dismal Soyanz http://www.tvhe.co.nz/2008/02/25/the-demand-curve-slopes-downwards-%e2%80%93-new-zealand-petrol-edition/#comment-955 Fri, 18 Apr 2008 05:19:04 +0000 http://tvhe.wordpress.com/?p=256#comment-955 Yes – everyone is consuming more transportation, if we mean everyone = NZ population as a whole.

I have been looking at fuel demand in NZ too from a different perspective and agree with what the study is saying.

There are a whole bunch of reasons why we have been consuming more “transportation” – including spending on petrol. This represents an outward shift of the demand curve. Immigration is one reason as is “natural” population growth and domestic migration. Higher incomes and increased job security are also playing their part.

A quick look at the 1995-price retail fuel sales data shows that volumes have come back to 2004 levels after spiking in 2005. The upswing is consistent with the strong economic growth we enjoyed while the downturn may well be the effect of the higher international price of petrol kicking in. This does not mean that people are not changing their driving habits.

I do believe that demand for petrol is fairly inelastic – it is after all a “grudge purchase”. I would characterise the behaviour in the market thus:

Growing domestic demand for petrol has pushed the demand curve to the right. this resulted in purchases of fuel going up 12% from the 1995-2003 average sales. The rising cost of oil internationally saw a dramatic shift in the supply curve upwards, reuslting in a reduction in purchases as prices rise. Of course, these effects were going on at the same time but I break them down like this to make it clearer what the individual influences are.

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/02/25/the-demand-curve-slopes-downwards-%e2%80%93-new-zealand-petrol-edition/#comment-954 Sun, 24 Feb 2008 22:21:37 +0000 http://tvhe.wordpress.com/?p=256#comment-954 “Which more or less refutes the article’s claim that rising petrol costs are making us change our driving habits”

It is true that the series has been growing strongly, however I’m not sure that this refutes the surveys claim. After all, petrol is a normal good and we have had significant increases in income and wealth over this period. Furthermore, there have been demographic shifts – with population growth coming in fairly strongly (through migration) and wasn’t there like a bunch of little bitters getting old enough to drive now.

“Everyone is just consuming way more transportation?”

This may be true, maybe people are happier to consume discretionary transport now eg going for a drive somewhere for no reason.

However, I agree that this specific detail feels a bit dodgy – it would be interesting to have a few more numbers to look at.

]]> By: CPW http://www.tvhe.co.nz/2008/02/25/the-demand-curve-slopes-downwards-%e2%80%93-new-zealand-petrol-edition/#comment-953 Sun, 24 Feb 2008 21:39:53 +0000 http://tvhe.wordpress.com/?p=256#comment-953 I wish these surveys made at least some reference to the hard data available on the topic at hand. Although I’m sure that demand for petrol is normal if fairly inelastic, a quick look at the retail series suggests that fuel volumes have actually been growing very strongly over the last five years despite the strong price increases. Which more or less refutes the article’s claim that rising petrol costs are making us change our driving habits.

Anecdotally public transport usage is growing up, which I’m not sure how to reconcile with the petrol series. Everyone is just consuming way more transportation?

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