Elasticity and Revenue
Based on this website http://www.forbes.com/sites/energysource/2011/05/10/raising-gas-taxes-wouldnt-cut-consumption-but-it-still-makes-sense/
Looking at the Forbes article on Oil based on Elasticity and Demand, it very clear that no matter what people argue oil is still an inelastic product for which the demand is not much affected with price at-least for the short-term.
As per the article 50% increase in price in the short-term leads to only 1.2% decrease in consumption. On the long run 50% increase in price leads to 4.7% decrease in consumption.
Hence, we can clearly understand the regular short-term price busts we experience in the gas prices.Looking at the oil closely and its uses there are not really any substitutes available in the market. Over the long run there is more decrease in consumption that short-term because to people not depending much on substitutes but may be looking at other alternatives like carpooling, working from home etc. All these alternatives can’t work for long and not for all type of customers.
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