Sunday, February 12, 2017

Oil Prices and their Effect on Consumption

I want to talk about the connection between energy prices and demand for consumer goods such as automobiles. It turns out that people pay attention to oil prices when choosing what type of car they are going to buy.

According to a study in the Electricity Journal there is a predictable pattern of oil prices having a direct effect on the demand and consumption of automobiles.

the author of the study goes on to find that the reduction in demand for automobiles was not equal across all categories of cars.

“Hamilton argues, all car sales should have declined. What happened instead was a 25% reduction for gasoline intensive SUVs, compared to only a 7% reduction for other domestic car sales.”

So a major determinant in the choice of automobile rested heavily on oil prices at the time of purchase.

You can see here in this chart how oil prices effect so many aspects of the American economy. It makes sense that an increase in price would effect even the most indirect things in our economy.

So a more expensive commodity led to a dramatic change in behavior for the consumer. So making oil more expensive will change the consumers negative buying habits with regard to the impact on our environment.

What things do you find yourself buying less of when the price goes up?

How important is the gas mileage of the car you are thinking about purchasing?

How high would oil prices have to get for you to change your driving habits significantly?

Further reading: 


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