Sunday, April 5, 2009

Decreasing Gasoline Demand

This graphic is from Saturday's Sacramento Bee.

This is a great example for an Economics professor to use to explain the difference between a change in demand vs. a change in quantity demanded. The decline in consumption in 06 and 07 and first part of 08 are relatively small, and a response to higher prices. That is a change in "quantity demanded," moving along the demand curve as price changes.

In late 2008, we see a big decrease in demand due to less income/economic activity. This is a change in Demand, the relationship between quantity demanded and price. As all Econ 101 students know, a decrease in demand will cause both price and quanitity to fall.

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