The elasticty of petrol demand: Boy (and Girl) Racers

But most of the time we assume (or have evidence that? -Matt?) petrol demand is fairly inelastic (hence the proposals to vary GST on petrol). With this in mind I was quite intrigued to see this article about Nikki who switched to driving her van when petrol prices soared and has since switched back to her EVO VII now that prices have fallen.

Her demand for being able to drive everywhere is inelastic, but her derived demand for petrol appears to be quite elastic:)

  • The value of petrol sales rise with the price – therefore I would say that demand is inelastic in aggregate.

    Furthermore – to get that type of substitution would require quite a capital investment from Nikki, an investment that likely exceeds the cost associated with the change in petrol price I might add 😛

  • I reckon her van is probably a peice of junk, she said it’s a diesel so it rpob didn’t cost much.

    Add to that how much gas an evo VII uses and it MAY be cost efficient if she got a good deal on the van:D

  • No matter what – I am sure she is maximising her expected utility

  • Indeed, not many people drive an EVO for its fuel economy!

  • A while back on Mark Thorma had some data on this on Economist’s View (sorry running out of time here so can’t dig it up for you) but a more accurate statement is probably ‘inelastic in the short term, more elastic in the medium-long term.’ Which makes sense as it takes people time to reorganise their lives in search of more cost efficient alternatives