Economics for your Classroom from Ed Dolan’s Econ Blog By One Measure, the Cost of Driving is Now Lower than Ever Before Dec. 29, 2014 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.

How Much Does it Cost to Drive Your Car a Mile? When you think of the cost of driving your car a mile, you probably think of the out-of-pocket cost—the money you pay at the pump Economists, instead, like to look at the opportunity cost—what did you have to give up to drive a mile? One way to measure opportunity cost is to ask, how many minutes do you have to work to buy the gas you need to drive a mile? Workers assemble flywheels for Model T cars in a 1913 Ford assembly plant Dec. 29, 2014 Ed Dolan’s Econ Blog

How to Calculate Opportunity Cost The opportunity cost of driving, measured in minutes worked per mile, depends on three things: Your wage, in dollars per hour The price of gasoline in dollars per gallon The efficiency of your car in miles per gallon Example: You earn $18 per hour Gas costs $3.00 per gallon An hour’s wage buys 6 gallons of gas, or 10 minutes of work per gallon Your car gets 25 miles per gallon Ten minutes work gets you 25 miles, which means the opportunity cost of driving is 0.4 minutes (24 seconds) worked per mile Dec. 29, 2014 Ed Dolan’s Econ Blog

Dec. 29, 2014 Ed Dolan’s Econ Blog 1919: 1.7 Minutes per Mile In 1919, a nonsupervisory worker earned about 50 cents per hour A gallon of gasoline cost about 25 cents A Model T Ford got about 17 miles per gallon That works out to about 1.7 minutes per mile 1919 Ford Model T Highboy Coupe Dec. 29, 2014 Ed Dolan’s Econ Blog

Dec. 29, 2014 Ed Dolan’s Econ Blog 1935: 1.2 Minutes per Mile In 1935, a typical worker earned about 56 cents per hour A gallon of gasoline cost about 17 cents A Ford V-8 got about 15 miles per gallon That works out to about 1.2 minutes per mile 1935 Ford Phaeton Dec. 29, 2014 Ed Dolan’s Econ Blog

Dec. 29, 2014 Ed Dolan’s Econ Blog 1950: 28 Seconds per Mile By 1950, a typical worker earned $1.59 per hour A gallon of gasoline cost 18 cents A Ford V-8 got 14 miles per gallon That comes to just under half a minute per mile 1950 Ford Custom Tudor Dec. 29, 2014 Ed Dolan’s Econ Blog

Dec. 29, 2014 Ed Dolan’s Econ Blog 2014: 11 seconds per Mile By December 2014, an average nonsupervisory worker earned $20.74 per hour A gallon of gasoline averaged $2.40 My 2014 Ford Fiesta* is rated at 36 miles per gallon (although it actually does a little better than that) At that rate, it takes just 11 seconds to earn enough to drive a mile *Eco-boost gasoline engine, 3 cyl, 1 liter, turbocharged, not a hybrid My 2014 Ford Fiesta Dec. 29, 2014 Ed Dolan’s Econ Blog

Dec. 29, 2014 Ed Dolan’s Econ Blog The 100-Year Trend This chart shows the entire 100-year trend, based on the average wage of production and nonsupervisory workers and the US average gasoline price The red points and trend line are based on selected popular Ford models The blue line is based on the average fuel economy of all cars on the road, both old and new The bottom line: If you drive Ford’s most efficient gasoline model (excluding electrics and hybrids), the opportunity cost of driving is at an all time low Dec. 29, 2014 Ed Dolan’s Econ Blog

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