Oct 30 2009
A cross-price elasticity example – gasoline and, eh hem… obesity
Published by Jason Welker at 7:31 am under Elasticity
A Silver Lining? The connections between gasoline prices and obesity – by Charles Courtemanche
Here’s the abstract from a new study about relationship between gasoline prices and obesity (I know, weird, right?)
A causal relationship between gasoline prices and obesity is possible through mechanisms of increased exercise and decreased eating in restaurants. I use a fixed effects model to explore whether this theory has empirical support, finding that an additional $1 in real gasoline prices would reduce obesity in the U.S. by 15% after five years, and that 13% of the rise in obesity between 1979 and 2004 can be attributed to falling real gas prices during this period. I also provide evidence that the effect occurs both by increasing exercise and by lowering the frequency with which people eat at restaurants.
Given these numbers, you, my students, should be able to calculate the cross-price elasticity of demand between gasoline obesity. Crunch the numbers, what do you see? Is this research plausible or did this guys simply see the relationships he wanted to see to support his thesis?
Hat tip to Professor Greg Mankiw.
Powered by ScribeFire.
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
haha that photo looks like the evolution of david.
jkjk
umm I can't calculate the cross-price elasticity. help?
PSH that $1 increase wouldn't reduce obesity, it'd raise a whole lot of hell.
I don't honestly think obesity is related much to gasoline. I mean, most obese people decide to start exercising when their heart palpitates after 10 steps of walking, not when gas prices rise. And chances are, obese people don't care about gas prices if they have enough money to eat out at restaurants. Lets face it, restaurant prices in the states are ridiculous. I could buy out GM with the money I spend on food there. People say you when they go back they get fatter, I say screw that. 9 out of 10 times (1 being the immigrant) most overweight US residents are lazy. Which basically explains why they would all rather carpool to mickie D's than ride a bike. OR BETTER YET, get someone to get you some. all in favor of enslaving friends and ordering in? amen. okok so my point is, gasoline and obesity? nah.
Like or Dislike:
0 
0
Well i have a revolutionary thought to give. Maybe increased gas prices actually INCREASE obesity. because when people get gas, they would have to get out of the car to pump gas, so even though it is very minimal, some exercise is achieved. However, with increased gas prices, p[eople begin to avoid getting gas as much as possible, decreasing the small amounts of exercise. When all those steps are added up together, it could actually make a difference
Like or Dislike:
0 
0
It seems true that where there's gasoline, there's bound to be obesity. If you had an automobile with gas in it, the he or she would drive the car instead of walking to the destinated place, it's common sense. This way is faster and less time consuming, and nowadays time is money. The roots of obesity may start before one gets a car but using the car instead of walking,biking, etc. progresses obesity much quicker. I agree with margaret that people in the states are usually lazy. I 've lived ther for almost 15 years and have seen the effects of having a car first hand. It's stupid that even though the restaurant/wherever is within walking distance, people still drive there because of their laziness. People sit all day on the seat going back and forth between destinations and become fatter and fatter. You see that here with the taxi drivers.
Like or Dislike:
0 
0
You can number crunch and do all that stuff, but the fact of the matter is simply that it is common sense. If gas is more expensive people will start to just walk out of financial responsibility.
The privileged class (us) needs to change the way we think. Walk that 3 blocks to the school and don't take a taxi, buy a bike and not a car. It is a need vs. want argument. No one needs a car. We just want them
Like or Dislike:
0 
0
Can one dollar cause such a dramatically effect on a person’s body? I am going to look at the problem in a different approach. To be considered obese, a man must have a BMI of 30 or greater or a body fat percentage of 25% or greater. The average American male according to sources is 185pounds at six feet with around 15% body fat. Using the BMI calculator the person must weigh approximately 222 pounds to be considered obese. That is 37pounds of fat tops, which is 129,500 calories, which rounds up to be 70calories a day over the course of 5 years. Which could be plausible but I highly doubt one dollar can cause this difference, because there are literally millions of other factors that could cause the results of the experiment to be altered. Furthermore, gasoline is a highly inelastic product; it is somewhat a necessity in people’s daily lives. If a person can afford a car, logically saying, he or she should also be able to afford the gasoline for the car too.
Like or Dislike:
0 
0
I never thought of the relationship between gasoline and obesity before, but I think it's quite interesting to make this connection between the two. It's somehow true that the
number of obesity people could reduce when the price of the gasoline is high, because then less people will be willing to pay for the high gas price, so they will choose to walk or bike. And vice versa. I like the idea presented in this article. =)
Like or Dislike:
0 
0
The connection between gasoline price and obesity is a pretty weird one, but actually makes sense in some ways. I think everybody mentioned it already, that the relationship between gasoline prices and obesity could be fairly logical. As gasoline prices rise, people will choose to take other methods of transportation and thus this could reduce obesity. Thus i guess the price of gasoline is elastic, because a 1% increase causes a 13% decrease in obesity. However time is also a factor here. Just because gasoline prices rise like 1$ doesn't mean people are going to start getting skinner. Over time, after the cars get old, then people might choose not to buy cars since gasoline prices have grown, and thus start to walk or ride a bike. This could cause a decrease in obesity
Like or Dislike:
0 
0
The cross elasticity between gasoline prices and obesity. When I read this title under the "Recent Posts" on the left hand side of the page I was immediately drawn in by this statement. Now after giving it some thought, this is how I modelled it out. The increase price of gasoline -> less transportation -> different methods of transportation (Ex. walking, jogging etc.) The whole idea seems pretty simple as the price increases for gasoline the average person is eventually going to be forced to seek different means of transportation. Since it is a necessity one method as a result is more walking from place to place.
With the increase of gasoline of $1, the obesity rates went down 15%, making gasoline elastic. Like Chan mentions time is an extremely significant factor to keep in mind because as time goes by gas prices are only going to rise thus leading to other means of transportation.
Like or Dislike:
0 
0
It is really weird that there is actually a connection between the price of gasoline and obesity. But, i think it is quite plausible, because, once the price of gasoline goes up, people might take another transportation or walk instead of driving their own cars. So, they can save money and exercise. Then, there's a decrease in obesity as exercise helps us being fit. Well, it is a both weird AND interesting research and maybe it does make sense on some people.
Like or Dislike:
0 
0
First of all, those statistics surprised me. 1$ increase in gasoline reduces 15% of obesity rates? Surprising. But then I guess this actually makes sense. Just like the activity we did in class in individual groups with the smart board, when gasoline prices go up, in the short-run people will still use gasoline and individual transportation. BUt in the long-run, lets say about 4 or 5 months later, people might use more public transportation or they might walk to work or ride bicycles to work, which would increase the amount of exercise people get and eventually reduce the chance of being obese.
Like or Dislike:
0 
0
It seems ridiculous that there is a relationship between the gasoline price and obesity, but it actually make sense. It is logical that people will choose to walk instead of taking a car when the gasoline price rises. However, as Chan said, time is an important factor, since a $1 increase in gasoline price does not mean that everyone would start walking and become skinny. If the gasoline price keeps on rising, then the people would decide not to use or buy cars. Since gasoline and cars are complementary goods, the price increase of gasoline would eventually decrease the demand for cars, which would then reduce obesity.
Like or Dislike:
0 
0
I do not think that the causation between gasoline prices and obesity exists. Just because two variables are positively correlated does not conclude to a direct explanation of obesity. There are simple too many other explanations for a decrease in obesity: health concerns, decrease consumption of junk foods, exercise promoted through new available facilities. Gas price increase has little significance on obesity.
Like or Dislike:
0 
0
I love how so many articles on the wiki are such interesting topics that are obvious but I never thought of them before =]. Hmm…I'm not sure how to calculate the cross-price elasticity of this either. The article says that as the price of gasoline rises, obesity decreases; i guess this makes sense, as people would walk to the supermarket instead of drive. However, can't the increase in price of gasoline also lead to obesity? Perhaps instead of walking to the supermarket, really lazy people, like myself, will just not leave the house. Another way would be to stop by the supermarket on their way to work. And what if they just choose to take public transportation instead? That wouldn't lead to a decrease in obesity…unless the bus stop was really far from their house or something. But I guess the price of bus tickets would also increase if the price of gasoline increased, right?
Like or Dislike:
0 
0
I can see how the increase in gas prices can cause such a change in the number of obese people, but I agree with Andy in that there is a whole list of things that could effect obesity. It makes it hard to tell where it is really due to the increase in gas prices. If it does have such a strong impact on the percent of obese people, I the percent lower now because when I go back to North America the gas prices have significantly increase. Yet on the surface everything looks the same as it was before the increase in price but I haven't seen any recent studies on the number of obese people in North America in a while.
Like or Dislike:
0 
0
Very cool. It's like a 2-1 deal. Not only are you richer, but you are also thinner. Even so, I believe that the cause and effect between gasoline and obesity isn't significant
But anyway, a rational solution to this issue may be to raise the prices of gasoline therefore drivers will give second thoughts when it comes to driving just a few blocks away. Ta-da!!! It may not sound like you are saving very much, but every little bit counts right?
Like or Dislike:
0 
0
Wow, relationship between gasoline price and obesity is really interesting. Since exercise increases, and people would prefer to take other transportation, this could make sense. However, I came out with other factors that are possible. Maybe the price of gasoline and obesity are directly porportional just because the time when gas price goes up, it is when foods and other goods price goes up together. Therefore, the people would less go to the restaurant and have dinner. It is just what I thought =)
Like or Dislike:
0 
0
Cross elasticity of demand can be calculated by dividing the percentage change in the quantity demanded of a product divided by the percentage change in the price of another product. Even though obesity is not a 'quantity demanded' one can place the -15% on the top of the fraction and for the bottom, another problem arises, as one cannot calculate the percentage change in price of gasoline not having the original price. From this point on, the situation can be looked at in two different ways. Because gasoline has very few substitutes at the moment and because for many of us it has become a necessity, not many people would stop buying it, and thus not so many people will become less obese and thus the relationship proposed in the article would not apply. However, if we were considering some households where gasoline makes a proportionally big part of their income [many households currently], then they certainly would start buying less of it, and maybe increase exercise or use public transportation. Moreover, over a longer time period, we will see less people using gasoline due to the increased prices, as with more time elasticity of demand will become more elastic. Therefore, this seemingly correct relationship has to be further detailed in order to see whether it is correct or not.
Like or Dislike:
0 
0
Using the Cross Elasticity of Demand equation, while applying the figures mentioned above, you can see that as the price of fuel increases by $1, the obesity rates would decrease by 15%. This is quite an intriguing observation, as it shows us how much obesity would decrease by. Looking at the results, we can assume that less people will drive cars (due to the higher prices of fuel) and thus end up exercising more (walking, riding the bike, etc.). However, if we were to look at time as a determinant (keeping in mind that fuel prices are going up), we can predict that eventually some people might buy Hybrids, or something similar. So while an increase in fuel price reduces 15% obesity rates (short-run), in the long-run more people will probably find alternatives to walking (hybrids, battery-chairs *sigh*) and thus the 15% decrease of obesity rates would probably begin to get smaller. This is because people will not be able to afford to buy hybrids (etc.) straight away and be forced to walk or take public transportation, but in the long-run, as their net-worth will increase they will be able to purchase these products.
Like or Dislike:
0 
0
I never actually thought that there was a possibility ti have this relationship. But, as it is state above, it is actually true. It is really interesting to know that if 1$ is added to the gasoline price, will reduce obesity by 15%. It may be so, due to the fact that these obese pople would have to walk more, or bike, or anything including a kind of movement, intead of driving everywhere.
The avereage cost of gasoline in USA is around 2.5$ a gallon, including tax. So if you add 1$ to the average, the new cost will be 3.5$. With this, a increase of 40% is added to the price of gasoline. And, due to the fact that the XED formula is, dividing the percentage change in the quantity demanded of a good A, by the percentage change in the price good B. So, if you divide 15%/40% = 0.375. This number means that this XED is inelastic, and that the goods are supposed to be substitutes. Which means, there is a relationship among these to aspects.
Like or Dislike:
0 
0