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1 1 (August 17, 2006)

handle is hein.crs/crsajid0001 and id is 1 raw text is: Order Code RS22496 August 17, 2006 CRS Report for Congress Received through the CRS Web Energy Prices and Tourism: Some Preliminary Observations Bernard A. Gelb Specialist in Industry Economics Resources, Science, and Industry Division Summary Energy prices faced by consumers have risen steeply in the last few years, and it is likely that spending on energy substituted at least to some extent for spending on other goods and services. It is widely believed that increases in energy prices, particularly gasoline, negatively affect tourism. The data presented provide partial and preliminary support on an aggregate level. On the other hand, there is anecdotal evidence that the effect may not be large. In addition, only part of any slowdown in tourism should be attributed to energy prices. This report will be updated when warranted by events. Energy Prices and Consumer Spending Consumers have faced sharply rising energy prices in the last few years. Most recently, they increased 28% between the first quarter of 2005 and the second quarter of 2006 (Table 1). Motor gasoline prices, which rose 39% during the period, had increased 31% from their 2002 average to the average for the first half of 2005. Prices paid by households for natural gas in the second quarter of 2006 were 13% higher than in the first quarter of 2005, but had been 34% and 28% higher in the fourth quarter of 2005 and first quarter of 2006. Similar to gasoline, heating oil prices rose 33% between the first quarter of 2005 and the second quarter of 2006, and had already increased substantially from their 2002 average. Inasmuch as the price elasticity of demand for purchases of energy in the short run is low,' higher energy prices have led to noticeably increased aggregate spending on energy in absolute terms and also as a percentage of total personal consumption 1 Demand price elasticity is a measure of buyers' responsiveness to a change in price. The large number of estimates of the demand price elasticity of gasoline, for example, based upon empirical studies, average about -0.25 for the short run. A demand price elasticity of -0.25 means that the quantity purchased will decrease 2.5% in response to a 10% price increase. The short run is a period in which a consumer has insufficient time to change equipment or significantly alter behavior. Congressional Research Service + The Library of Congress

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