Economic Impact of Gasonline Price Increase

Hello Brian, As an Input-Output model, unfortunately IMPLAN is not as well designed to do this as some other modeling formats that will allow you to measure varying elasticities. However, here are few things to keep in mind, and that you can look at with IMPLAN. [ul] [li]Price changes are captured in the data as part of the total annual Output for all Sectors.[/li] [li]If households spend more at the gas station (326), then all participating Margined Sectors will also get more money. The simplest way to look at this would be to use your elasticities to calculate the change in gasoline expenditures and then run as a Margined Industry Change to Sector 115. Margins can be applied to Sector 115 via the [url=https://implan.com/v4/index.php?option=com_multicategories&view=article&id=567:567&Itemid=71]Event Options> Edit Event Properties>Margins> Yes[/url]. Unless you know that all the expenditures occur within your city or county (i.e. all production, transport, wholesale and retail are local) which is not the case in most smaller geographies, you will also want to set the Local Purchase Percentage to SAM Model Value via the Event Options> Edit Event Properties>[url=https://implan.com/v4/index.php?option=com_multicategories&view=article&id=567:567&Itemid=71#lpp]Set Local Purchase Percentage> SAM Model Value. You can then adjust the retailer to 100% local in the Margins Edit screen if you know that all the sales for your study are made to local gas stations.[/li] [li]However, just because households are spending more on gas (due to higher prices), that does not necessarily mean they are buying MORE gasoline - i.e., the level of gasoline production may not change at all! In this case, unless the refinery and/or gas station starts paying their workers more, there really is no impact beyond profits, to any industry Sectors. We don't typically recommend modeling profits in IMPLAN unless you know where the company owners live and how they would spend those profits (if they in fact spent them at all).[/li] [li]If you want to examine changes to household spending, we would typically recommend reducing the spending as a range of assumptions, because depending on the circumstances and incomes of those purchasing gasoline, it may or may not affect how they spend their money.[/li] [li]If you do want to reduce spending on other household purchases, you could modify a Household Spending Pattern to take out the expenditures on 115, 326, 360, and 361 and then run the decrease as a negative Activity Level. To edit the Activity Level, you can click the Edit Activity button at the top of the screen with your selected Household Spending Pattern highlighted. You may also decided that an increase in gas prices will not affect their expenditures on other utilities like water, trash and power (31-33, 390) in which case you may also want to remove these from the spending patterns that you model. [\li] [/ul] Here are a couple forum discussions about elasticities that may be helpful as well: http://implan.com/v4/index.php?option=com_kunena&func=view&catid=84&id=15702&Itemid=35#15706 http://implan.com/v4/index.php?option=com_kunena&func=view&catid=84&id=13274&limit=6&limitstart=12&Itemid=35#13573 Please let us know if this addresses your concern or if you have any additional questions.

Thank you for your answer. I have a few follow-up questions. 1. Conceptual: Gasoline price affects people’s expenditure on 326 sector. Why would we run Margined industry on Sector 115 (Petroleum refineries), not on Sector 326? 2. Could you check whether the steps of the following analysis are correct (for bullet #2)? In County A, people spend approximately $10 million per month on gasoline. Using a short-term elasticity of -0.2 and gasoline price increase of 10%, people will have spent about 8% more on gasoline (about $800,000 additional expenses on gasoline) in the next month. I want to assess the economic impact for the next month in County A. After setting up an activity, in Events section, I would put 115 Petroleum Refineries with industry sales of $800,000 and apply Margins and set Local Purchase Percentage to SAM Values. Then run a scenario containing this activity. Would this be a correct way to follow your advice on bullet #2? Thank you for your help.

Hello Brian, 1. You can certainly run the change in expenditures through sector 326, but the only impact you will see will be the portion of the sale price that the retailer gets to keep and the spending of that margin on the things needed to operate the gas station (electricity, water, cleaning supplies, advertising). You will not see any impact to oil refining nor the transportation and wholesale associated with that gasoline. Unless you tell IMPLAN that it was gasoline (sector 115) that was purchased from the gas station, it does not know what was purchased (gas vs. food vs. cigarettes vs. .....) and thus will not know who to give the producer value to or how that item was transported to the gas station. 2. Yes, that is correct and exactly how we would recommend doing it!

[attachment=438]WyomingRetailGasolineConsumption.xlsx[/attachment] I have a follow up question. For some of counties of my interest, I computed gasoline consumption in Dollar using vehicle mile travelled (VMT) data and made some comparisons with IMPLAN data. I see a very big difference and hope if I could have a better understanding on the reason for a significant difference. Here’s an example. I have a 2011 Fremont County (Wyoming) data set. I went to Explore>Industry Accounts>Reports. I see that the third column is “Household Demand,” for which I see a figure of $9,483,505 for Retail Gasoline (Sector 326) and $0 for Petroleum Refineries (Sector 115). I assume that $9,483,505 is a household consumption on gasoline as well as other items in retail gasoline station. I wanted to check this figure with my computation using vehicle miles driven. In Fremont County, people have driven 350 million miles (source Wyoming DOT). Using 23.5 mile per gallon standard, this equates to 14.9 million gasoline consumption. In 2011, the average price of gasoline was $3.2. When I multiplied these two, I came up with $47.7 million spent on gasoline, which is a lot larger than $9.48 million in IMPLAN data for 2011 Freemont County. I did the same exercise for other counties in Wyoming as well as for the entire Wyoming State (Please refer to the attached document). You will notice a large difference between Colum D and Column J in the attached Excel file. Here are my questions. 1. First, if I want to look at the local consumption, is the data under “Industry Accounts>Reports> Household Demand (3rd column)" the correct one to refer to? 2. Could you clarify the definition of “Household Demand”? Is it limited to the consumptions made by only residents in that geographical area (which may attribute to a siginificant difference)? Thank you. Brian

Hi Brian, The purchase from sector 326 is only of retail markup. If the markup is 33%, then a purchaser price of $27 million will result in $9 million of markup for retail sector 326. The fact that there is 0 purchased from refined petroleum probably means there are no local refineries - ie, the producer value is imported. You are correct, the purchases from sector 326 represent the average markup of goods and services sold by the retailer. All final demands (including HH) are by institutions residing in the area. If the county has significant "pass through" then overall gas station sales will be much greater than residential HH demand. 1) I would use Explore >Study Area Data - as it would be gross demand by residents whether produced locally or imported. This way you would see the demand for refined petroleum - even though it will be imported. 2) Yes. Hopefully this helps. Please let us know if you have additional questions or concerns.