My wordFebruary 6, 2009 Tim WorstallEconomics6 Comments Road traffic has fallen for the first time in 30 years after high fuel prices You mean prices and incentives matter? previousHmm, why not?nextErm, why? 6 thoughts on “My word” Kit February 6, 2009 at 12:25 pm So long as you can untangle the effects of the recession. I’m betting road traffic will continue to fall even with lower fuel prices. Johnathan Pearce February 6, 2009 at 12:26 pm Amazing, high prices produce an effect. Someone tell Polly, Richard Murphy and Paul Krugman. Kay Tie February 6, 2009 at 12:47 pm “So long as you can untangle the effects of the recession.” It’s now spelled “re.. depression”. gene berman February 6, 2009 at 1:16 pm Individual responses to changes in price are only somewhat predictable, with statistical representations leading to the concept (among mainstream economists) of “elasticity.” Consumers react in different ways. Some merely consume less; some change partially or even completely to a different good; and, although some will return quickly to their former pattern when prices return to their former level, some may alter their behavior forever. Those who sell products on the shelves of supermarkets are keenly aware of the various tendencies and are, therefore, very reluctant to increase prices in recognition that some customers will consume less of their product and even fall into the lessened-demand habit even if (and when) price goes down and yet others may abandon the product entirely (or find a less costly substitute). Nothing mysterious there (except predicting the shape of reaction, the “job” of entrepreneurs). A (relatively) low price of fuel has a much wider “ripple” effect, extending far beyond the confines of transportation or personal leisure habits. The tendency to prefer larger homes in suburban and semi-rural areas depends, to a great extent, on the relatively lower pricing of fuel both for transportation as well as for the heating and cooling of the structures themselves. Thus, higher fuel prices will tend to depress the rents and prices of suburban land and enhance those in more densely populated areas. Leisure will be occupied differently; even patterns of work may be affected more or less profoundly over time. (The tendency toward a shorter workday may reverse in consideration of the commuting time and expense saved; prospects increase for computer (and communications)-aided work which can be done at home to increase, both for the regularly and the self-employed, enhancing the demand not only for the gadgets employed but for specific home office products. Nothing changes in isolation. Matthew February 6, 2009 at 2:24 pm Jeez, those crazy libruls who have spent the last god-knows-how-long arguing that raising the price of petrol has no incentive on driving behaviour…part of their anti-driving ideological war on the motorist to price him off the road…er..oh… john b February 8, 2009 at 5:01 pm @ JP: Polly Toynbee and Richard Murphy are idiots who don’t understand economics; Paul Krugman, whatever you think of his political views, is rated by his peers (including neoclassicalists, for all they disagree with him) as one of the greatest living economists. Classing him as someone who doesn’t believe ‘high prices create an effect’ is just surreal. Meanwhile, Matthew wins. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.