A Model for Passenger Car Gasoline Demand in Canada

A model for motor gasoline demand in Canada is developed by household. The model identifies and separates effects of several responses by the household to a change in gasoline prices such as driving fewer miles, purchasing fewer cars, and buying more fuel efficient cars. It also estimates the manufacturers’ response of improving the technology of new automobiles. The size and the composition of the fleet according to the interior volume of four classes of automobiles rather than their natural weight is used. The estimated coefficients suggests that most of the adjustment after a gasoline price increase comes from miles driven in the short run and from miles per gallon, hence fuel efficiency improvements in the long run. The model gave the total short run (one year) price elasticity of gasoline consumption between 0.312 – 0.313. One of the more interesting results is that approximately 10 percent of the household response to a price change in the first year was due to a change in the composition of the fleet to a more to a more fuel efficient vehicle. Approximately 75 percent was due to driving fewer miles while the remaining 15 percent was attributed to a change in the size of the fleet. The intermediate run (five year) price elasticities range from 0.689 to 0.709 and the long run price elasticities (ten year) range from 0.975 to 1.059.