mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Friday, September 30, 2005

Why would I choose a more expensive alternative?

I was using the "blogs that link to this blog" feature on Technorati, and found this post on commenting on an old post about gas price elasticity. His problem seems to be a comment I made that I chose to make a trip (in May, when gas prices were still around $2/gallon) to NJ to visit my family. He says that I should have been smart enough to use alternatives - you know, being an MBA student and all.

My point was that gas prices are ineleastic, because demand doesn't change much despite higher prices, and I offered my own personal thoughts on why it hasn't changed my purchasing. But even if alternatives exist, it doesn't change my hypothosis - that gas prices are inelastic - if people choose to still buy gas instead of using those alternatives.

But there is a good reason why I drove instead of taking greyhound or amtrack - lower marginal cost. I used prices from today, since I couldn't go back in time to May. A round trip ticket on greyhound would be $65 (baltimore downtown to newark) and an amtrack ticket (Baltimore Penn Station to Newark) would cost $89. That doesn't include the cost of getting to the station (cab or car parking) or getting from Newark to my parent's house in Somerset County (about 45 minutes away).

on the other hand, I get at least 25 miles a gallon, and it's about 200 miles each way. Gas was $2 a gallon in may, so that's about $32. At today's prices, it would be $48. Most of the other costs of my car are fixed - I would pay insurance, car payments, and registration even if my car sat on the street for the weekend (where it would probably acculate at least one $32 parking ticket). True, there is wear and tear on the car, but that's hard to calculate.

There are also large nonmonetary advantages to driving. I can leave when I want instead of having to catch a bus or train. I can crack open the windows and the sunroof and play my music and sing along and nobody cares. Plus, I can fit more in my car than I would on a train or in a bus - since my landlord charges me per load to do laundry, I usually bring home a couple bags of dirty clothes with me (which is an added financial incentive). And I have a car to use while I'm in NJ, a significant advantage.

from Colby:
And it would seem easy to prove that there's no inessential traveling in American life: simply define every trip as inherently essential, and the argument is made.

The point of my original post wasn't to evaluate consumer behavior, but rather to explain it. But in a free market, if a consumer says a trip is essential, then it is. And it doesn't have to be essential - they just have to feel that the benefit (monetary and non-monetary) is greater than the cost.


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