The Demand Curve for Gasoline

Businessweek reports a decline in gasoline consumption to the lowest level in five years. This brings to mind many phrases tossed around on CNBC lately such as "demand destruction" and "the cure for high prices is high prices". Both speak of the relationship displayed by the simple demand curve - as prices rise, the quantity demanded falls. When the prices rose, consumers reacted by buying less. The demand for gasoline is relatively inelastic which means that consumers are not very sensitive to changes in price. This doesn't mean that consumers don't complain about the change in price, it just means that consumers are not able to change their behaviors quickly in response to price changes. For instance, I still have the same car as I did last year when gas prices were lower and I still live the same distance to work, etc. If gas prices stay high I will make long-run adjustments and buy a more efficient car next time or move closer to work. In any case over time people make adjustments. Of course this same phenomenon could be used to easily cure our dependence on oil - a goal politicians have spoken of for decades but they have never had the political will to do something about it. The easiest solution is to use market forces - increase the gas tax. Read Greg Mankiw's plan and comment below. The gas tax has never been seriously considered in the U.S. because the Democrats think that the word tax should only be followed by "the rich" (and gas taxes are regressive) and Republicans think that the word tax should only be followed by the work "cut".