current diesel fuel pricing
Locally, I'm seeing gasoline prices drop considerably, however diesel pricing doesn't seem to be going down as fast. Is the same thing happening in your area? It seems the price differential betwe...
Forum Discussion
dedmiston wrote:valhalla360 wrote:
The result is diesel prices tend to be inelastic. That means they tend to be slower to go up and down.
That's not what elasticity is. It has nothing to do with any stickiness or lag in price adjustments. It has to do with the demand for a good through a range of prices.
"Price elasticity" means that the change in price has little affect on the shape of the demand curve.
You're kind of in the ballpark in that fuel tends to be price inelastic compared to other goods, but not because of a time lag.
Elasticity boils down to how much you really need something. My demand for ice cream would be pretty flat from $0 to $6 per carton, but then at $7/carton my demand would taper off and I'd either look for substitute goods or just do without.
My demand curve for oxygen is perfectly flat. I always want the same amount. Thank God it's free, but if you raised the price I'd still want the same quantity. My demand for oxygen is perfectly inelastic.
Our demand for fuel is relatively inelastic compared to things like ice cream. But "inelasticity" refers to the fact that our demand doesn't change a lot based on the price.
Elasticity has nothing to do with a lag in the prices based on supply.
(And there are tons of other things that impact the shape of a demand curve besides the price of the good, like price and availability of substitute goods.)
Never said that's "what it is". It's the net result of inelasticity though that means diesel price tends to move differently from gasoline.
If you have a quick spike or drop in oil prices, commercial operators (ie: diesel buyers) keep buying the same amount. Personal drivers (ie: gasoline buyers) though can cut/increase their consumption based on the price. The result is the market swings more quickly chasing the demand changes of gasoline buyers faster than it chases diesel buyers. Since we are currently on a down swing, gasonline is leading the way well ahead of diesel prices.
While there are other factors, for all practical purposes in the short term, there are zero substitutes. I mean, sure you can fill your big rig with gasoline but it's not going to work out well. Multi-fuel vehicles really have never caught on in a big way (there are a few exceptions but they big enough to really move the market). If prices stay high for a long period of time (say 3-4yrs), you may see a move to alternatives as trucks age out and are replaced with alternatives but that takes a lot of time and commercial operators need to believe the high prices are here to stay.
