Price Elasticity of Demand in the U.S. Gasoline Market: Limitations of Simple Annual Calculations

This study examines the limitations of using a simple annual price elasticity of demand calculation to measure consumer response in the U.S. gasoline market. Gasoline demand matters for both business pricing and public policy because consumers rely on gasoline for commuting and daily travel, yet they may not adjust consumption quickly when prices change. Using U.S. Energy Information Administration data from 2022 and 2023, the paper compares annual retail gasoline prices with finished motor gasoline product supplied, applies the midpoint elasticity method, and uses a simple linear demand model to interpret the price and quantity relationship. The annual result shows that the average gasoline price fell from about $4.059 to $3.635 per gallon, while product supplied increased only slightly from about 8,810 to 8,945 thousand barrels per day. The estimated PED is about -0.138, which indicates strongly inelastic demand. Further discussion using monthly comparisons suggests that annual averages may hide short-term consumer responses and mix price effects with seasonality, income, travel habits, and vehicle technology. The study concludes that PED remains useful for describing gasoline demand, but simple two-year estimates should be interpreted carefully when supporting pricing or policy decisions.