In a post about gasoline prices at Outside the Beltway Steve Verdon links to this article at Econbrowser which comes to the startling (to some) conclusion that the market economy actually works.
Calculated Risk caught today’s big story from the Energy Information Administration, which was that the drop in U.S. gasoline demand (discussed by Big Picture and William Polley last week) has turned into a freefall. As the above graph reveals, U.S. gasoline demand had been above the values of the previous year for all of June and July. But the August price hikes brought use back in line with the 2004 values. The post-Katrina price hikes and shortages sent it plummeting for the week ended September 9 to a value more than 6% below where it had been for the week ending September 10, 2004.
The article includes this chart showing the drop in demand quite visually:
In other words, when gasoline prices went skyrocketing in the wake of Katrina, consumers responded by cutting back on their use of gasoline. Not surprising news to someone who understands economics, but I’m sure that people in the halls of Congress and at the editorial board of the NY Times are scratching their heads over this one.
