Part of the “My favorite FRED graph” guest post series.
The FRED graph above shows gasoline prices and real personal consumption expenditures on motor vehicle fuels, lubricants, and fluids between 2006 and 2015.
I use this graph when illustrating how changes in prices influence the quantity demanded of a good or service. The inverse relationship between these two variables is a foundational concept in introductory economics courses. This relationship is also used in econ courses to calculate the price elasticity of demand.
But instead of using made-up figures or imaginary scenarios to illustrate the price elasticity of demand, I direct my students to use real data from FRED. My co-author and I published an article in Journal of Economic Education presenting a step-by-step process for instructors to use this type of FRED data in their classrooms: My students download the data behind this graph or hover over it to write down price and quantity index values; then, they use conventional formulas to calculate consumers’ responsiveness to price changes between any two dates.
And this exercise has a bonus teachable moment. In a couple of occasions, the elasticity of demand coefficients are positive, thus providing an opportunity to discuss the “non-price determinants” of demand. For example, the positive elasticity coefficient between 2008 and 2009 provides an opportunity to discuss the Great Recession and how it may have affected real personal consumption expenditures on motor vehicle fuels, lubricants, and fluids. Data like these help me bring economics to life.
A note about the data in the graph: This line graph shows two data series from two different sources: The blue line shows conventional gasoline prices, measured in dollars per gallon, as reported by the Energy Information Administration. The red line shows the quantity of real personal consumption expenditures on motor vehicle fuels, lubricants, and fluids, measured using an index, as reported by the U.S. Bureau of Economic Analysis.
How this graph was created: Search for and select “Conventional Gasoline Prices: U.S. Gulf Coast, Regular.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Real personal consumption expenditures: Nondurable goods: Motor vehicle fuels, lubricants, and fluids (chain-type quantity index).” To change the date range, adjust the start and end dates above the graph.
Suggested by Carlos J. Asarta.