Thursday, January 26, 2012

Consumer Behavior and Gas Prices

In economics, one of the fundamental concepts is consumer theory or consumer behavior. The basic idea is that as the price of a good (say gasoline) changes that the amount a typical consumer purchases changes in the opposite direction. This is what we refer to as the law of demand. Not only that but depending on the choices that consumers have in the marketplace, theory predicts that if there are acceptable substitutes, over time consumers will switch to lower priced goods.

Here is a great article from the New York Times that shows both of these effects. Consumers are driving less and also choosing other transportation options (public transportation).

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