Adapting to $4 Gas

For the 2nd time in three years, we face gas prices of at least $4 per gallon.  How does a rational person cope with such dynamics?  There are several adjustment margins.  Since most households own more than one car, they can make all of their non-commute trips (which are most trips) using the more fuel efficient vehicle.  Suppose that they have one car with a 25 MPG range and one with a 35 MPG range.    At $4 per gallon, a mile of driving the “hog” costs 16 cents while a mile driving the “Prius” costs 11.4 cents.  So, this substitution can reduce the price per mile by 30%.    Now, some people may be able to drive less.  People who live in the cities have an easier time substituting to public transit over those who live and work in the suburbs.

But, the people in the suburbs know that they are reliant on their vehicle and they know that gas prices are volatile — basic economics would predict that they would have a coping strategy (i.e a Prius in the garage).  Do you really feel sorry for the household who only owns minivans?

So, $4 gas is a tax on rural and suburban large households who own a set of Hummer like Mini-Vans.  What % of Americans fall into this group?   Are they victims?  To count how many of there are, you would need to combine Census data with vehicle registration data.  RL Polk will sell such vehicle registration data by zip codes so a research nerd could identify the geography of which communities face the greatest impact of short run gas spikes.   I will give you a hint; it won’t be Berkeley. The people of Berkeley, CA don’t drive much and when they do they tend to drive a Prius.

Now, the final adaptation card is to yell at your politician to do something about gas prices!  

Will this be the end of the world?  

As I discuss in Climatopolis,  we must become a more nimble people who can cope and thrive when faced with change.

Read more at Environmental and Urban Economics