Sunday, June 22, 2008

Cross-Price Elasticity: Consumers Respond

In economics, the cross price elasticity of demand measures the responsiveness of the quantity demanded of one good (X), to a change in the price of another good (Y).

As gas prices have soared, consumers have cut back on the amount of gas purchased (measured by the price elasticity of demand, which would be negative), but high gas prices have also resulted in increased purchases of other products and services (positive cross-price elasticity), and Greg Mankiw and Division of Labour have been keeping track:

1. Increased use of public transportation, and increased purchases of homes near public transportion.

2. Increased purchases of smaller cars.

3. Increased purchases of camels in India and mules in the US, for farming.

4. Increased purchases of bicycles and bike repairs.

Division of Labor adds more:

5. Increased purchases of scooters.

6. Increased purchases of locking gas caps.

7. Increased purchases of manual lawn mowers (picture above).

8 Comments:

At 6/22/2008 10:53 PM, Blogger juandos said...

Trade the mower in for a couple of sheep...

There's by-product there for the smart person to use...

 
At 6/23/2008 8:49 AM, Anonymous Anonymous said...

> 7. Increased purchases of manual lawn mowers (picture above).

Demonstrating once more that there is no end to the wrong-headedness of grandstanding EcoTwits and reason-challenged Morons of all stripes.

The amount of gas used to mow a lawn is probably radically less than the amount of time lost by doing such manually.

Time==Money.

 
At 6/23/2008 11:56 AM, Blogger LowTax said...

My Home Owner's Association does not allow sheep :)

Also, while time is money, I'm a cheap bastard who needs to exercise - my manual lawn mower (owned since 2001) does the trick nicely and I never seem to run out of gas just when I need to mow the lawn. But the last thing I am is a greenie!

 
At 6/23/2008 11:56 AM, Blogger LowTax said...

My Home Owner's Association does not allow sheep :)

Also, while time is money, I'm a cheap bastard who needs to exercise - my manual lawn mower (owned since 2001) does the trick nicely and I never seem to run out of gas just when I need to mow the lawn. But the last thing I am is a greenie!

 
At 6/23/2008 4:43 PM, Blogger OBloodyHell said...

> My Home Owner's Association does not allow sheep :)

Sure they do. They spotted you coming, and got you to sign onto an agreement telling you that they controlled how you used your property...

:o)

 
At 6/23/2008 4:48 PM, Blogger OBloodyHell said...

> Also, while time is money, I'm a cheap bastard who needs to exercise

My issue wasn't with you -- your reasoning and purpose for using a manual mower is presumably valid for you (might be cheaper and more fun to join a health club and watch pretty girls while you work out, though).

My issue is with damnfools who claim it's "saving energy". They'd be better off, in most cases, figuring out how to make more wealth for society (and themselves in the bargain). Granted, most of the people who would make such a transition are unimaginative dunderheads, but that's a different issue. 'Danes are always out of touch with reality.

...No, not 'Danes'. Apostrophe-danes, as in 'mundanes'. People with no imagination. People who couldn't imagine space travel even AFTER it happened.
- Niven/Pournelle/Flynn, 'Fallen Angels' -

 
At 6/24/2008 8:21 AM, Blogger juandos said...

Hey lowtax, loved the line: "My Home Owner's Association does not allow sheep :)
"...

Its interesting you bring up something I still have a hard time getting my head around even though I understand the reason intellectually...

obloodyhell actually says it: "got you to sign onto an agreement telling you that they controlled how you used your property"...

I grew up in Laredo, Tx and there were no such associations then (back in the sixties but there are now) and even after all this time I find it odd that people would accept oversite...

Well it could always be worse, home owner associations have nothing on King County (Seattle) Washington...

I'm sure some remember the 65-10 rule that was passed there: Critical reas Ordinance, particularly the 65/10 provision
The CAO includes a provision requiring rural landowners to set-aside 65% of their property as native vegetation if/when they develop their land...

This and other similer, socialist rulings in King county have had an impact: UW study: Rules add $200,000 to Seattle house price

Backed by studies showing that middle-class Seattle residents can no longer afford the city's middle-class homes, consensus is growing that prices are too darned high. But why are they so high?

An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities. (there is more)

 
At 7/17/2008 1:25 PM, Anonymous Anonymous said...

how can price elasticity be negative? i was under the impression that a perfectly inelastic good has a demand elasticity of 0.

 

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