EIA: Gas Prices Have Little Effect on Car Travel

WASHINGTON, D.C. — Although one might assume lower gas prices would lead to increased U.S. automobile travel, that is not the case, according to the Energy Information Administration's (EIA) Short-Term Energy Outlook.

The average nationwide retail price per gallon has fallen 28 percent, as of Dec. 8, from its 2014 peak price of $3.70 reached June 23. However, the EIA noted that automobile travel is inelastic, meaning price changes have little effect on demand.

In fact, gasoline prices need to decline by 25 percent to 50 percent just to see a 1-percent increase in U.S. automobile travel, the EIA revealed. 

Price elasticity measures the responsiveness of demand to changes in price. According to the EIA, most elasticities are negative, including automobile travel.

One exception is air travel, which is highly elastic. For every 10-percent increase in the price of air travel, there is more than a 10-percent decrease in the amount of air travel, according to the EIA.

In addition, the Short-Term Energy Outlook also revealed an expectation that gasoline prices in 2015 will be 23 percent lower than the 2014 average.