How elastic is demand for gasoline?
In the short term, gas demand is inelastic. Like other goods with inelastic demand, gas is a necessity. People have to have it so they will continue to buy it even when prices rise. However, as with many other goods with inelastic demand, demand will become more elastic if high prices persist over time. People will find alternatives and reduce consumption. They will carpool, buy smaller cars, dust off their bicycles, and take public transit. And the greater the price hike, the faster the adjustment. In May 2008, with gas prices hitting $4 per gallon, Americans drove 9.6 billion fewer miles than they did during May 2007. For the year as a whole, the Federal Highway Commission concluded that Americans drove about 3.6% fewer miles. If the tax had been imposed on a different good—say, fur coats—that had more elastic demand, its incidence could not be easily shifted to consumers. The supply and demand curves would look like this: The bottom line is that who pays a tax of this sort is not re
