Theory and Empirical Foundation for Energy Policy Designed to Promote U.S. Motor Gasoline Conservation

The US gasoline demand function is derived under different theoretical specifications, and the functional forms are then compared for both statistical significance and theoretical implications. Two basic methods to the formulation of aggregate demand equations are employed: 1. the per capita model, and 2. the aggregate motor gasoline demand model. It is demonstrated that both the money price of motor gasoline and money income have a notable effect on the consumption of motor gasoline and that money illusion may exist for the consumer. Price and income elasticities considered simultaneously indicate that adjusting gasoline prices and US income to curtail motor gasoline consumption, and thereby mitigate a serious energy problem, would require that the gasoline price be increased drastically, the income growth held down, or both.