As I continued writing, I realized that shoes and shoelaces was a lame example and that perhaps cars and gasoline would be a better example. Unless you've got an electric car or you just want somewhere to sit, a car isn't much use without gasoline. Likewise, unless you're an arsonist, you can't do much with a jug of gasoline if you don't have a car.
What a topical example, I thought. Gas prices have skyrocketed in the last couple months — I'll bet car sales have gone down. People must be taking transit, walking or riding bikes more — or just travelling to fewer places than before. But when I did a search for news articles about this, I found just the opposite. According to the headlines, car sales have been holding steady despite rising gas prices:
- "Auto sales hit the gas in Canada" (Winnipeg Free Press)
- "Rising gasoline prices and new models … helped lift U.S. compact and subcompact auto sales 24 percent" (Reuters)
- "Surging car sales signal of an economy on the mend" (Detroit Free Press)
- "Car sales rise: Higher gas prices haven't scared consumers … yet" (Yahoo Finance)
- "Small cars in demand as gas prices soar" (Columbus Dispatch)
I can think of three alternative explanations for why car sales are up, in order of most plausible to least plausible:
- Holding everything else constant, rising gas prices cause car sales to drop. But rising gas prices have coincided with an economic recovery, which, holding everything else constant, causes car sales to rise. The positive effect of the economic recovery is stronger than the negative effect of gas prices.
- Long-run gas prices, as opposed to short-run gas prices, influence people's car-buying behaviour. Car sales are strong because people expect gas prices to drop significantly during the lifetime of their car.
- Cars are a status symbol — people enjoy them because it signals their wealth to others. If gas prices go up, causing the price of car ownership to rise, it sends an even stronger signal about a driver's wealth, which makes a car more desirable.