[econoclectic] EclectEcon: An Increase in the Price of a Substitute Leads to an Increase in Demand

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Posted by EclectEcon:
An Increase in the Price of a Substitute Leads to an Increase in Demand
http://econoclectic.powerblogs.com/posts/1180212658.shtml


   No foolin'.
   Following the recent increase in the price of gasoline, more people
   seem to be taking public transportation. This result emphasizes not
   only the substitution effect, but also the fact that gasoline/petrol
   is NOT a necessity and that even in the short-run, demand curves are
   downward-sloping. When the price goes up, some people cut back on the
   quantity demanded to some extent.
   From the Trono Glob & Mule, aka [1]The Toronto Globe and Mail [long
   gone behind a price wall now, unfortunately]:

     Gas prices are up across the country, but no major city has been
     hit harder than Vancouver with an average pump price of $1.272 a
     litre for regular unleaded gasoline. It's been climbing steadily
     toward that record since February. But as gas prices continue to
     rise, so does the number of people who use public transit.

   I expect that the comparatively higher price of gasoline in Europe
   also helps to explain why public transportation systems are used so
   much more here. Helps.

References

   1. http://www.theglobeandmail.com/servlet/Page/document/v5/content/subscribe?user_URL=http://www.theglobeandmail.com%2Fservlet%2Fstory%2FRTGAM.20070518.wgreen18%2FBNStory%2FNational%2F%3Fcid%3Dal_gam_nletter_newsUp&ord=883172&brand=theglobeandmail&force_login=true