Friday, August 19, 2022

Working from home and the price elasticity of demand for petrol

Interesting post from Michael Cameron, economics professor at the University of Waikato in New Zealand.

He added some great points to a post I did in July called Is the ability to work from home affecting the price elasticity of demand for gas?

Here is an excerpt from Professor Cameron's post:

"How does working from home change this picture? When workers can work from home instead of driving into the office, this makes available a new substitute for driving. Working from home is relatively cheaper than driving, so many workers would prefer to work from home, if they can. That makes demand for petrol more elastic. The change in elasticity will be greatest for workers where working from home is a closer substitute to working in the office. That will include workers who don't have to drive towards work for other reasons, such as dropping kids off at school, grocery shopping on the way home, etc.

The current high price of petrol (as a result of the war in Ukraine, and unrelated to working from home (as far as we know)), has probably reinforced the increase in the price elasticity of demand. If petrol is now taking up a higher proportion of household income, demand will tend to be more elastic for that reason as well.

Combining those effects, demand for petrol is more elastic now than it was before the pandemic led to a large increase in working from home."

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