When prices go up, in most cases consumption goes down, although there are some famous exceptions to this rule.
One, as students of economics are taught, is the consumption of potatoes in Ireland in certain times in history.
Here, when prices went up, people ate more potatoes, the explanation being that higher potato prices meant that consumers had less money for other food, so they ate more potatoes.
There are few cases like this, but some goods are price inelastic, meaning that price makes little or no difference to consumption. One is fuel.
Motorists have watched in recent months as oil prices have seemingly defied gravity, spiralling first towards $100 a barrel and then $150.
But motorists, notably in the United States, the world’s largest consumer of oil, have changed their behaviour as prices have risen.
There has been a big switch to public transport, car pools, smaller cars and, in cases, a four-day week (the fifth day is spent telecommuting).
Higher prices saw Americans cut their consumption by 2%, enough to widen the gap between supply and demand and bring some stability to what has otherwise been a market driven by supply concerns.
Oil, which peaked at just under $150 a barrel, has since fallen back to its current $113.
Petrol prices, which peaked in Gauteng at R10,70 a litre have subsequently fallen twice by 30c and 75c.
Economist Mike Schussler this week predicted that petrol will be cut by R1 a litre and diesel by R1,45 when prices are next announced.
Stanlib economist Kevin Lings said last week that petrol sales in South Africa have fallen to their lowest levels in four years. “The high price of both petrol and diesel has probably led to a slowdown in demand for fuel, especially at the household level. “There is evidence of less leisure travel being undertaken in South Africa.”
Lings says that in the second quarter this year petrol sales fell to 2 701 million litres, a decline of 2,8% relative to the second quarter of 2007 and the lowest sales volume since the second quarter in 2004.
While petrol sales have been falling, diesel sales have been robust, but are also showing signs now of slowing, says Lings.
In the first six months of 2008 petrol sales were down 1,8% compared with the first half of 2007.
In contrast diesel sales remained reasonably strong during the second quarter this year, growing by 3,7% year on year.
Lings says that petrol sales volumes were only 1,5% higher in the second quarter this year compared with the same quarter in 2004. “In contrast, in Q2 2008, the volume of diesel sales were 27,5% higher than in Q2 2004. South Africa has become more diesel intensive in the past five to 10 years.”
Lings says a number of factors are affecting fuel sales. There has been an increase in the use of diesel-powered cars, “probably driven by a combination of clever marketing as well as a desire for increased fuel efficiency”.
The strong economic activity between 2004 and 2007 brought a substantial increase in transport activity while the neglect of the railway system has forced companies to haul goods by road rather than rail.
He says it is likely, too, that many Zimbabweans buy fuel in South Africa. This is recorded as domestic sales rather than exports.