Downward Sloping Demand Curves


The cable news shows this morning were full of wide-eyed anchor larvae reporting that with gas prices high, people were driving less, and instead using more public transit! Oh, for a land in which the downward-sloping demand curve was not such a constant source of surprise and wonder to the broadcast media.

I bow to no one in my general contempt for cable news talkers — Shakespeare would undoubtedly update Dick’s famous line in Henry VI if he were writing it today — but for five years U.S. gasoline consumption has been famously impervious to sharply rising prices. The cost of a tank of unleaded has more than doubled since 2002, but consumption has merrily kept rising 1.5% a year anyway. It was only in 2007 that consumption even started to flatten out, and only this year that it’s projected to decline — ever so slightly. So can we really blame the cable talkers for being a little surprised that consumer behavior is finally changing?

Besides, it might not even be the price of gas that’s responsible. Gasoline consumption does fall during recessions, and that might have as much to do with the recent reduction in driving as prices at the pump.

More generally, though, sure, demand curves slope downward. But that’s the starting point of any serious discussion, not a devastating comeback that ends it. If the slope is very mild, as it seems to be with gasoline consumption and minimum wage labor markets, for example, there might be other factors at play that introduce enough real-world noise to flatten out the curve over part of its range. It’s an empirical question, not an ideological one, and there’s no way of knowing for sure except by looking at the data.