With SUV sales up, car sales down, and mileage driven up, the effects of lower gas prices could soon extend to land use, making suburban and exurban commuting more affordable. Economists have a term for these effects: demand response.
Josh Zumbrun, national economics correspondent for The Wall Street Journal, explains the far-reaching effects of plunging oil prices, though they may not be immediately felt. Key to his findings is this three-part image showing:
- Estimated increase in demand
- U.S. vehicle sales (split between leaner cars and less-efficient SUVs and trucks)
- Mileage driven
Zumbrun describes two basic economic terms that help explain the energy/economic forces just beginning to take hold now, starting with "demand response."
Oil prices fell and stayed low in the 1980s and 1990s, gradually reducing worries about energy consumption. That fueled a boom in exurban housing developments and left industries less cautious about their fuel use. Economists call this a “demand response.” The changes took years
The last sentence is key—the changes become more visible over years, as Zumbrun explains in his description of the second economic term, elasticity. He starts with elasticity when oil prices increase.
When oil prices were rising in 2011, the International Monetary Fund (IMF) estimated that every 10 percent increase in the price of oil quickly reduces demand for oil by about 0.2%," he writes. Consumers adapt through vehicle selection, commute patterns and modes, housing choices. The effect is rather startling on transit ridership according to a 2011 study.
If the (oil price) increase proves lasting, the change grows to about 0.7 percent. Economists consider it a clear case of a product whose demand is "inelastic" in the short run—that is, changes relatively little in response to price—but “elastic” in the long run, meaning it can eventually change quite a lot.
What's happening now, of course, is the reverse, but rather than a 10 percent decrease—it's 50 percent. "All told, demand for oil could rise by 1.25 percent in developed countries in the short run and 4.7 percent if the price stays so low," writes Zumbrun.
For a better understanding of the economic forces at work due to plummeting oil prices and their consequences that may take some time to materialize, watch The Wall Street Journal Video. Moderator Paul Vigna asks Zumbrun all the right questions.
FULL STORY: Oil’s Plunge Could Help Send Its Price Back Up

Trump Administration Could Effectively End Housing Voucher Program
Federal officials are eyeing major cuts to the Section 8 program that helps millions of low-income households pay rent.

Planetizen Federal Action Tracker
A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

Ken Jennings Launches Transit Web Series
The Jeopardy champ wants you to ride public transit.

Texas Bills Could Push More People Into Homelessness
A proposal to speed up the eviction process and a bill that would accelerate enforcement of an existing camping ban could make the state’s homelessness crisis worse, advocates say.

USGS Water Science Centers Targeted for Closure
If their work is suspended, states could lose a valuable resource for monitoring, understanding, and managing water resources.

Driving Equity and Clean Air: California Invests in Greener School Transportation
California has awarded $500 million to fund 1,000 zero-emission school buses and chargers for educational agencies as part of its effort to reduce pollution, improve student health, and accelerate the transition to clean transportation.
Urban Design for Planners 1: Software Tools
This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.
Planning for Universal Design
Learn the tools for implementing Universal Design in planning regulations.
Heyer Gruel & Associates PA
Ada County Highway District
Institute for Housing and Urban Development Studies (IHS)
City of Grandview
Harvard GSD Executive Education
Toledo-Lucas County Plan Commissions
Salt Lake City
NYU Wagner Graduate School of Public Service