Why We Run Out of Gas

The number of stranded drivers is up. As the price of gas climbs, so too does the number of unexpectedly empty tanks:

Let’s see why.

Gasoline Prices

Probably demonstrating correlation, an analyst at GasBuddy suggests one reason we are running out of gas is a partial fill up. When people have little left before the next paycheck, they might use their last $10 on gas. Further adding to the case for correlation, a recent study indicates that 61 percent of survey participants with incomes below $50,000 did not entirely fill their gas tank. Meanwhile, moving to some causation, six out of 10 people said they were saving on gas by skipping errands.

Most of us know that the average price of a gallon of regular climbed to almost $5:

But it also depends on where you live. Confirming that the West Coast has the highest gasoline prices, the AAA said California just topped $6.40 a gallon. Meanwhile, you might want to drive to Georgia for its $4.41 average:

When U.S. gasoline was half of today’s price, the average driver used close to 427 gallons a year, just 1.64% of a typical salary:

Now, FinanceBuzz reported in a May 18 article where drivers spent the highest percent of their monthly income on gas. At 6.4 percent, Alabama was #1:

Our Bottom Line: Elasticity

An economist might have responded to high and low gasoline prices with one word, elasticity. The impact of a price hike or fall depends on your price elasticity of demand.

Elasticity is the demand concept that recognizes how each of us responds to a change in price. If that response is minimal, as with medication, then our price elasticity of demand is inelastic. We want those pills or, similarly, that gallon of gasoline, no matter how much we have to spend. Increasingly though, I have been reading that our demand for gasoline is more elastic than scholars used to assume, especially during a longer time period.

In the following graph, you can see that the blue line (driving miles) is down when the red line (gas price) is up:

Moving from correlation to causation and inflation, I suspect we will learn much more about our demand elasticity for gasoline in a year or so. I wonder where we switch from inelastic to elastic. $6.00?

My sources and more: Thanks once again to Slate Money for alerting me to an increasing number of stranded drivers. From there, The Washington Post, the U.S. eia and Bloomberg and financebuzz had the details. Then, if you want to read more about our demand for gasoline, this blog is pretty good.

Please note that some sections of “Our Bottom Line” were in a past econlife post.