[Click for a larger version of the picture.]
Jenny & I took a day-trip to Yosemite yesterday. It’s a little too far away to only spend one day there (360 miles or 580 km round trip from San Francisco), but definitely worth the effort. We went on a hike on the western edge of the Yosemite valley — this picture is taken near Inspiration Point (aptly named!). We didn’t quite make it to Inspiration Point, because the sun started setting.
The waterfall is Bridalveil Fall.
Chance that a British baby’s first word is a brand name: 1 in 4.
–Harper’s Index 2004
I’d like to see some of the details behind this study…
The oil slick off the Louisiana cost is still expanding and is now approaching coastal marshes. The Coast Guard is now going to try to set fire to the slick in the hopes of dissipating the oil. Some commentators have (jokingly?) suggested that the US should simply nuke the slick and move on, like the Russians did several times during the Soviet era.
All of this craziness makes me wonder: what’s the point of all of this? Why even bother with domestic off-shore drilling at all? It’s often been said by level-headed observers that tapping off-shore capacity wouldn’t do anything to lower prices here in the US.
And what do you know — we can use our handy-dandy gasoline demand model to figure out how much of an effect on prices this oil would have. Instead of explaining gasoline consumption (making consumption the dependent or Y variable), we now explain gasoline prices (by making prices the Y variable.)
According to Energy Information Administration, U.S. off-shore capacity would max out at around 200,000 barrels per day. In gallon terms, this is about 8.4 million gallons per day, or .03 gallons (110 ml) per U.S. resident per day.
If we re-estimate the equation from several posts back, we get the following inverse demand function:
Here, we see that price goes down by 17 cents for every extra gallon consumed per person per day. δ is monthly variation; ε is error; Q is quantity per person per day; U is unemployment; and P is price, in cents.
Plugging in .03 gallons per person per day, the yield from U.S. off-shore drilling, we find that U.S. gas prices would be about .467 cents lower than before.
Long story short: off-shore drilling isn’t worth it. A .467 cent decrease in gas prices while running the risk of destroying our ecosystem in the same way the Louisiana coast is now being destroyed?
Not worth it.
I just came across a really interesting blog: Ara is a sixty-something French-born Armenian chef riding around the US on a motorcycle together with his dog, Spirit. Check it out. The pictures are great, the writing is even better, and his journey is inspiring, to say the least.
… and I’ll tell you why.
This is only one of a many commercials like this. You may have seen one from Sprint that’s very similar: three people are stuck on a ski lift, and the commercial talks about how these three people have awesome Sprint phones so they can visit an alternate reality (be at work, be at the beach, check Facebook, whatever.) Back in the day, when you were stuck with two other people on a ski lift, you might… you know… talk to them. Face to face.
Same thing goes for the Verizon commercial above: you’re camping with your kids, and the little brats are too busy texting to pay attention to what’s going on out there. Developing decent social skills is awkward enough as it is — do kids really need a way out of every uncomfortable situation?
I don’t see how marketers can think this kind of escapism is a virtue. To me, it’s not a selling point at all.
// end rant
My home state of Texas is famous for its large number of executions. For years, the Texas Department of Criminal Justice maintained an online list of what these inmates requested as their last suppers. TCDJ recently took down the list, but it is now available on a mirror.
The list makes for fascinating reading. Be sure to click on the inmates’ names, so you can see why they were being executed.
My favorite: Stanley Baker, Jr.
Two 16 oz. ribeyes, one lb. turkey breast (sliced thin), twelve strips of bacon, two large hamburgers with mayo, onion, and lettuce, two large baked potatoes with butter, sour cream, cheese, and chives, four slices of cheese or one-half pound of grated cheddar cheese, chef salad with blue cheese dressing, two ears of corn on the cob, one pint of mint chocolate chip ice cream, and four vanilla Cokes or Mr. Pibb.
What a fattie.
Our friend Tony came for a visit last weekend. It was a great time, and I thought I’d share some pictures. These are from the Golden Gate bridge, a kayaking trip in Tomales Bay, and a beach near Point Reyes.
In a previous post, I estimated the following equation for the demand for gasoline (January 2002-December 2009):
where P is price in cents, U is unemployment in percentage terms (i.e. 7% unemployment equals U of 7), and δ equals monthly variation (because gasoline consumption differs substantially by month.)
In previous posts, I also estimated the price elasticity of demand, ε, for gasoline. We can also calculate an elasticity value for unemployment — this would tell us how much gasoline demand changes for a change in unemployment. Just as price has an impact on gasoline demand, so does unemployment. I’ll spare you the math — the procedure is exactly the same as outlined in this post.
Here is a graph of price elasticity of demand and unemployment elasticity of demand:
What is interesting about this graph is that it shows that gasoline consumption is more responsive to a change in unemployment than it is to a change in price. The higher (in absolute value terms) the elasticity number, the more responsive consumption is.
It’s a weird result, to be sure — it implies that price isn’t as important in changing demand as general economic well-being (or lack thereof). These elasticities are constantly changing; when either prices or unemployment rates soar, consumption rates are affected more by an additional increase in prices or unemployment.
I just read something in my economics textbook similar to the ideas expressed in my “Marketing to the Womb” post from several months ago:
… Some promotional tactics are subtle. For example, grocery stores place sugary breakfast cereals on lower shelves so that they are at children’s eye level. According to a survey of 27 supermarkets nationwide by the Center for Science in the Public Interest, the average position of 10 child-appealing brands (44% sugar) was on the next-to-bottom shelf, while the average position of the 10 adult brands (10% sugar) was on the next-to-top shelf.
(Jeffrey Perloff, Microeconomics with Calculus, p. 432)
Clever. Dirty, but clever.
[Previously: parts 1, 2, and 3.]
Let’s talk about gasoline taxes. As I pointed out in previous posts, gasoline consumption is lowered only slightly by an increase in prices. While this makes it difficult to reduce consumption (and carbon dioxide emissions), it does give us the opportunity to raise an enormous amount of revenue. And while gasoline consumption may not decrease much in percentage terms, when slight decreases in per capita consumption are multiplied across the entire population of the US, the result can be formidable. When combined with unemployment, a price increase can actually decrease per capita consumption. Also, it seems like once prices started hitting $4/gallon, demand really nosedived.
***
Clearly, gasoline prices are volatile. We know that much. Wouldn’t it be great, from the consumers’ point of view, if a gasoline tax actually fixed prices at $4? A large (and volatile) portion of people’s expenditures would now become a predictable budget item.
In other words, the price faced by the consumer will always be $4. If gas costs $2.50, the tax rate is 60%, and revenue per gallon is $1.50. If it costs $1, the tax rate is 300$, and revenue is $3.
If gas costs $4.50, the consumer still pays $4. Revenues from previous months make up for the price difference, and, in effect, citizens receive a 50 cent subsidy.
This idea would obviously never work in the U.S. due to political reasons, but is still an interesting exercise.
***
How much revenue would a tax of this kind generate? By what percentage would US carbon dioxide emissions be reduced?
Using our demand equation, unemployment data, and plugging in a value of $4, we can find out the answer for 2009. Because the equation was estimated using seven years of price, consumption data, and unemployment rates, we can figure out how people might adjust their consumption if prices were to go up. That’s the point of it all.
Revenue of $210 billion and foregone carbon dioxide emissions of 45 million tons. That represents nearly a 4% decrease from 2009 vehicular carbon dioxide emissions. Not bad!
Now, what to do with all that revenue?
[Oprah voice] E-very-body gets an electric car!
