This morning, how did you get to school? Most of us probably answered, "by car." If not, there's a good chance that your household owns at least one car to get around. That doesn't seem like such a foreign concept to us until we see the cost statistics over time.
It's obvious that the modern era is different from how people used to live, but it's surprising to see just how much people have become reliant on things that used to be a luxury. The main reasons why cars are considered a luxury is due to the price of both the car itself, as well as gas.
Initially, cars were built for the rich and powerful. Though the first car only cost about $16,000 and the gas prices were as low as $0.38 per gallon, considering the poverty rate in the 1800s, it was a high honour to be able to purchase a car. Fast forward a little to 1950, when cars became more available to the public; the average car cost $15,000 and gas was still as low as $0.27 per gallon. The national consumption of gas was 40.1 billion gallons. In 1970, the average car cost $21,625 and gas cost $0.36 per gallon and America consumed 88.7 billion gallons of gas. In 1990, a car cost around $27,292 and gas prices jumped to $1.15 per gallon, but the total amount of gas consumed still increased to 110.9 billion gallons. Finally, in 2012, the cost of an average car decreased to about $26,377 but the gas price tripled to $3.64 per gallon, and gas consumption hit 133.8 billion gallons.
That was a lot of numbers but to sum it up, since the 1950s to 2012, gas prices have increased by over 1300% and the average car price by over 175%. Despite these significant changes, the national gas consumption has also increased by over 300%. Due to these increases, the total revenue of crude oil has shot up since the '50s.
The point of displaying all of this data is to show how over time, something that used to be a luxury is now a highly inelastic necessity. There isn't much that can replace gas and motor vehicles. Biking and walking, public transportation, and carpooling aren't always options. Until we can find a convenient replacement, we can expect the oil industry to keep increasing its revenue.
It's obvious that the modern era is different from how people used to live, but it's surprising to see just how much people have become reliant on things that used to be a luxury. The main reasons why cars are considered a luxury is due to the price of both the car itself, as well as gas.
Initially, cars were built for the rich and powerful. Though the first car only cost about $16,000 and the gas prices were as low as $0.38 per gallon, considering the poverty rate in the 1800s, it was a high honour to be able to purchase a car. Fast forward a little to 1950, when cars became more available to the public; the average car cost $15,000 and gas was still as low as $0.27 per gallon. The national consumption of gas was 40.1 billion gallons. In 1970, the average car cost $21,625 and gas cost $0.36 per gallon and America consumed 88.7 billion gallons of gas. In 1990, a car cost around $27,292 and gas prices jumped to $1.15 per gallon, but the total amount of gas consumed still increased to 110.9 billion gallons. Finally, in 2012, the cost of an average car decreased to about $26,377 but the gas price tripled to $3.64 per gallon, and gas consumption hit 133.8 billion gallons.
That was a lot of numbers but to sum it up, since the 1950s to 2012, gas prices have increased by over 1300% and the average car price by over 175%. Despite these significant changes, the national gas consumption has also increased by over 300%. Due to these increases, the total revenue of crude oil has shot up since the '50s.
The point of displaying all of this data is to show how over time, something that used to be a luxury is now a highly inelastic necessity. There isn't much that can replace gas and motor vehicles. Biking and walking, public transportation, and carpooling aren't always options. Until we can find a convenient replacement, we can expect the oil industry to keep increasing its revenue.
https://www.statista.com/chart/1408/us-gasoline-consumption-tripled-since-1950/
https://wgntv.com/news/the-average-car-now-costs-25449-how-much-was-a-car-the-year-you-were-born/
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=F000000__3&f=A
I think that you make a really interesting point here. Due to the world being so connected, it is almost a necessity for us to have a car. I also think that with the introduction of technology humans have gotten more lazy - thus making them more willing spend money cars, phones, etc. rather than revert to more old fashioned ways. This concept of inelastic is true in a lot of these cases: as the price increases, so will the total revenue big companies are making.
ReplyDeleteWhile I think you are right that cars and gas have become inelastic goods in our society, since people keep consuming more of them despite rising prices, it is important to account for inflation because despite the smaller numerical price of the earlier cars, the spending power of that initial car price far exceeds today.
ReplyDeleteI think that it's interesting to think about how a car can be an inelastic goods for some people, but for others it could just view it as a unnecessary luxury. When my parents lived in New York, they didn't need a car to travel around because they relied heavily on the subway system. When they moved to Los Altos however, they realized that a car was much more necessary to live. While I think that cars are an inelastic good for most people, I think that there is still a large fraction of people who don't need them and can view cars as a luxury.
ReplyDeleteThis article was an interesting read. I think it is also important to note the differences that location and alternatives have on the elasticity of a car. For example, now that we have uber, lyft, and other similar services, how has the elasticity of cars and gas been affected? Additionally, locations may serve a difference too. For example, someone in New York may not view cars as much as a necessity as someone from Los Angeles simply because of the resources available to them.
ReplyDeleteIt is really important to note the differences in prices and how they have changed because of the demand. Since many of us now see cars as inelastic, we are willing to pay for the increasing prices. The increase in demand has also shifted the demand curve and thus increased the price. However, I think that with the sharing economy, we are starting to consider it as a luxury rather than necessity.
ReplyDeleteCars are definitely a big part of many people's lifestyles, but I think that the inelasticity of cars is not universal, and may vary depending on where you live. What I mean by this is that there are many countries such as Japan, Korea, or France, with efficient subways and trains that allow people to commute through public transportation. However, here in the Bay Area, it does seem very inconvenient and nearly impossible to rely solely on public transportation, making cars more of a commonplace than those other countries.
ReplyDeleteI think this is an interested read, especially as most of us are driving age. I've always thought that although cars are very convenient, I often wouldn't pick them over biking just for the sake of gas prices. However, as some people's needs are more elastic than others, cars may be the right choice for someone who is traveling quite far.
ReplyDeleteI definitely agree that cars are an inelastic necessity. From the statistics above, it's clear that no matter how much the industry increases the price per gallon, car and gas consumption will continue to increase. Although it is hard to get around with a car now a days, cars have become more of a lifestyle symbol. This is why more people are willing to pay for expensive, luxury cars because as the price goes up, so does the demand.
ReplyDeleteI definitely agree that cars are an inelastic necessity. From the statistics above, it's clear that no matter how much the industry increases the price per gallon, car and gas consumption will continue to increase. Although it is hard to get around with a car now a days, cars have become more of a lifestyle symbol. This is why more people are willing to pay for expensive, luxury cars because as the price goes up, so does the demand.
ReplyDelete