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Thursday, May 29, 2008

Drinking and Driving

When I was in high school, most of my budget went to two items, gas and beer. At that time, the price of gas was 25 cents a gallon, and beer was $1.25 a six-pack if I remember correctly (and I may not). So the relative price was 5 to 1, i.e. to get five gallons of gas, you had to give up a six pack of beer.

Today, the tradeoff is a bit different. A gallon of gas is around $4.00 and beer is over $5.00 a six-pack. I'm not sure on the price today, but say let's say it's $5.50. So now, roughly, the relative price is 5.5 to 4, or 5 to 3.63 rather than 5 to 1 as before. Gas costs a lot more beer these days, to get five gallons today you have to give up 3.63 six packs, where before it was only one.

If someone had an allowance of $5 per week back then and purchased two six-packs and 10 gallons of gas, then they would need $51 to purchase the same basket of goods (or bads) today. Since this was 36 years ago, that works out to inflation of 6.7% per year. Not quite as bad as I imagined, but still pretty high, certainly higher than the increases in the minimum wage over that time period. Kids who didn't drink at all, say they put all of their allowance into gas, would need $80 today to buy the 20 gallons of gas they could get for $5 at a quarter per gallon. That's an inflation rate of 8.0%. But an all beer kid, one who spent all $5 on beer and didn't drive at all, would only need $22 today to get the same amount of beer. That's an inflation rate of 4.1%.

Given the shift in relative prices, kids today should be tempted to drink more, and drive less.

    Posted by on Thursday, May 29, 2008 at 12:33 AM in Economics | Permalink  TrackBack (0)  Comments (10)

          

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