The Price Elasticity for Gasoline Revisited

Energy conservation has been a major goal of three administrations, yet disagreement about how to achieve it has hampered conservation efforts. Advocates of nonmarket rationing claim that gasoline demand is highly inelastic, and hence that higher prices would result mainly in substantial income redistribution. In contrast, economists typically point to the price mechanism as the best method for promoting conservation. Clearly the issue depends to a great degree on the price elasticity of demand for energy. Since nearly one-half of the petroleum consumed in the United States is used as motor fuel, this note focuses on the price elasticity for gasoline.