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U.S. Department of Energy Energy Efficiency and Renewable Energy

Fact #507: February 25, 2008
The Short-Run Price Elasticity of Gasoline Demand Declined Over the Past Several Decades

In a paper presented at the 2007 Transportation Research Board meeting, authors from UC Davis showed that the short-run price elasticity of gasoline demand with respect to the price of gasoline declined from a range of -0.21 to -0.22 in 1975-1980 to a range of -0.034 to -0.077 in 2001-2006.

This means that doubling in the price of gasoline in the earlier period would result in a 21% to 22% decline in the amount of gasoline use, but doubling the price of gasoline in the more recent period would result in only a 3.4% to 7.7% reduction in gasoline use. This paper won the Transportation Research Board (TRB) Barry McNutt Award in 2008 for the best energy policy paper presented at the 2007 annual TRB meeting.

Decline in Gasoline Use Due to Doubling the Price of Gasoline
Graph showing that doubling the price of gasoline during the period 1975-1980 led to a 21-22% decline in gasoline use while a doubling during the period 2001-2006 produced a usage decline of only 3.4-7.7%. For more detailed information, see the table below.

Supporting Information

Decline in Gasoline Use Due to Doubling the Price of Gasoline
Time Period Decline
1975-1980 21 - 22%
2001-2006 3.4 - 7.7%

Source: Jonathan E. Hughes, Christopher R. Knittel, and Daniel Sperling, University of California, Davis, "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," Working Paper 12530 (PDF 126 KB). (Download Adobe Reader) 

 

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