An investigation into the elasticity of demand for motor gasoline
This thesis investigates the existence and determinants of the elasticity of demand for motor gasoline. The research can be divided into four main stages. In the first stage, time series data of fifteen member countries of the Organization for Economic Cooperation and Development (OECD) are analyzed. The ratio of gasoline price per gallon to the per capita GNP is introduced in this research to explain the variability in 2 the size of the pric~ elasticities of demand over the various countries.
... he ratio is called the "Price Factor" and designated as P.F. The introduction of P.F. established the basis for meaningful inter-country comparisons of elasticity behavior. Three elasticity functions of P.F. are estimated via time series analysis. In addition, time series analysis revealed a functional dependence of demand for motor gasoline on the per capita GNP lagged by one year. In the second part of the thesis, the annual data of the various countries are examined cross sectionally. Based on the cross sectional analysis, demand is estimated as a function of P.F. The third stage of the thesis is devoted to the validation of the research. Both the time series and the cross section findings are utilized for the retrogressive forecasting of demand levels in three countries of the OECD that were not included in the analysis of the first two stages. The validation secti6n is conclude~ by choosing one of the elasticity functions estimated via time series analysis as the most accurate forecasting model. The forecasts provided by that specific function were quite satisfactory. President Carter's energy program is examined in the fourth stage of the thesis using the function chosen in stage three. A temporal price profile is generated until the year 1990. This profile would achieve the President's goals for national consumption of motor gasoline. 3 It is found thDL a 22% annual increase of gasoline price, to be introduced starting the year 1979 would achieve the goal of a 10% reduction in demand by the year 1985. Such a price profile suggests much higher taxation than proposed in the President's energy program. TO MY WIFE PERI HAN ACKNOWLEDGMENT I would like to thank