What Is the Implied Price Elasticity of Gas in Goolsbee Calculation?

1. What is the implied price elasticity of Gas in Goolsbee calculation?

Because “prices don’t do an impressive job” at changing people’s behaviors, the price elasticity of gas implied is inelastic or close to -1. While some nations like Europe and Japan are affected when prices change, Americans tend to live further from work so they have less transportation substitutes and have to endure the price increases.

2. What does the price elasticity tell you about gas consumption in the short run? How might this change in the long run?

The price elasticity in the short run is almost inelastic because gas substitutes are not readily available. As people cannot just buy a new car when gas prices go up, people will not change their demand for gas in the short term when prices rise. This might change in the long run, where a substantial price increase lasts for about five years or more. Five years gives people the time to conserve gas by buying smaller cars, moving closer to work, or finding other substitutes.

3. According to Goolsbee’s numbers, how many years of gas at U$S5 do we need for a family to be willing to switch to a hybrid Toyota Highlander SUV? If needed do not use discounting. And how many years at a price of $4?

While Goolsbee says at $5 per gallon, it would take several years for a family to switch to a hybrid, we can use his calculations to pinpoint exactly how many years. As a hybrid saves a family $441 over three months, every year the family saves about $1764. Because a hybrid costs $9000 more, it would take about 5.1 years in order for the investment in a hybrid to become profitable. If the price were $4 a gallon and given that a family driving an average of 12000 miles per year would use about 29 fewer gallons a month, they would be saving $116 a month or $1392 a year. In order for it to be profitable,