Despite being lower than their all-time highs, gas prices at the pump are still significantly higher than they were six months ago. A full tank of gas for an SUV might cost well over $100. As fuel costs eat up more of people’s salaries, people are feeling the pinch and looking for methods to balance their budgets.
Nevertheless, economic laws have an impact on choices, and when prices rise, demand may decline, especially if the commodity is discretionary and is thus reflected by demand elasticity. Transportation is a need for some people, therefore demand may be moderated but not completely abolished.
What unforeseen repercussions resulted from the rise in oil prices, then?
Better personal health: Alternative forms of transportation might be used for discretionary trips. Walking, bicycling, and using public transportation all involve additional physical exercise. The net result of people giving up driving is increased personal energy expenditure and resulting in weight loss. Numerous health advantages of physical activity can eventually result in lower healthcare expenses and better health.
Anyone can decide to do this at any time. However, as most of us value our time, it is desirable and desired to use a form of transportation that takes less time. However, when practical, individuals will drive less because it will save them money at the pump and perhaps even time at the doctor’s office.
Permanent remote employment: Avoiding travel time and expenses is a perk of remote employment. More businesses may change their minds regarding this matter after starting to welcome their staff back to their offices as the COVID-19 risk diminished.
High gas prices will boost teleworking as an employee benefit, allowing for national recruiting without the need for relocation. This might permanently change the way that commerce is done in the country. Additionally, since the demand for office space is still low, it will need the conversion of vacant office buildings.
However, teleworking is not a free lunch. Some of the advantages of remote work will be mitigated by rising home utility expenditures for heating and cooling as well as electricity consumption for computers and other electronic equipment. Be on the lookout for businesses to substitute “utility” benefits like parking spaces for transportation benefits to motivate and retain their workforce.
Housing costs: Over the past year, home prices have risen sharply. Along with growing gas prices, there are also rising costs for electricity and natural gas, which are used to heat and cool homes respectively. Will Americans look for ways to lower their home ownership costs in the same manner they do their driving expenditures?
This will put more emphasis on downsizing to smaller homes that use less energy to heat and cool them as well as on energy-efficient HVAC systems and homes. Demand for solar panel installation will also increase. Smaller, more energy-efficient homes may be valued more than larger, leaky ones as a result of the impact on property values.
The major question is whether the recent increase in energy prices will last or not. Many people will endure the wave of rising prices if the increase is only transitory. Solar panels, electric and hybrid cars, and energy-efficient living will all become standard if it seems to permeate our economy. Of course, increased demand will result in higher pricing for everything energy efficient, reducing some of the anticipated savings.
It has become evident that affordable energy was a luxury that the majority of us took for granted. Recall how, in the early stages of the COVID-19 epidemic, there was an insufficient place to store extra capacity, and the supply of oil significantly outstripped demand, causing the marginal value of a barrel to drop to zero dollars.
Two years later, the energy price switch has been flipped from unbelievable lows to unfathomable highs, forcing all of us to reevaluate how we travel and live.
There will be more unforeseen effects of increasing energy prices. It will be interesting to see how customers react and how market dynamics change during this brief period.
Professor Sheldon H. Jacobson, Ph.D., teaches computer science and medical informatics at the University of Illinois in Urbana-Champaign. He uses his knowledge of data-driven risk-based decision-making as a data scientist to assess and influence public policy.
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