Molly Espey examined 101 different studies* and found that in the short-run (1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.
This is why the Cassandras who predict that the price of oil (and derivative products) will continue upward are always wrong. And why there is money to be made shorting the bubble. The hard part is figuring out when it will deflate.
*Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis
Espey, Molly
Energy Journal. Vol. 17, no. 3, pp. 49-60. 1996
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