Modern Economy, 2014, 5, 939-950 Published Online August 2014 in SciRes. http://www.scirp.org/journal/me http://dx.doi.org/10.4236/me.2014.59087 How to cite this paper: Taghvaee, V.M. and Hajiani, P. (2014) Price and Income Elasticities of Gasoline Demand in Iran: Us- ing Static, ECM, and Dynamic Models in Short, Intermediate, and Long Run. Modern Economy, 5, 939-950. http://dx.doi.org/10.4236/me.2014.59087 Price and Income Elasticities of Gasoline Demand in Iran: Using Static, ECM, and Dynamic Models in Short, Intermediate, and Long Run Vahid Mohamad Taghvaee, Parviz Hajiani Economics Department, Persian Gulf University, Bushehr, Iran Email: vahidestan@yahoo.com , hajiani@pgu.ac.ir Received 26 June 2014; revised 20 July 2014; accepted 30 July 2014 Copyright © 2014 by authors and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Abstract Price and income elasticities of gasoline demand show whether the price policy, pursued by the Iranian government, can decrease the high gasoline consumption sufficiently or not. Since the two oil price shocks in 1970 and 1973, interest in the study of oil products demand has increased con- siderably, especially on gasoline. High gasoline consumption is a serious crisis in Iran, posing economically, politically, and environmentally threats. In this study, the elasticities are estimated over three intervals, short run, intermediate run, and long run in Iran during 1976-2010, by put- ting the estimates of Error Correction Model (ECM), static model, and dynamic model in an in- creasing order, respectively. The short run, intermediate run, and long run price elasticities are −0.1538, −0.1618, and −0.3612 and the corresponding income elasticities are 0.2273 - 0.3581, 0.4636, and 0.7284, respectively. Not only do these elasticities imply that the gasoline demand is price and income inelastic but also the adjustment velocity, estimated by ECM, is a low point at −0.1942. Based on the estimations, the gasoline demand responds to the changes of price and in- come slightly and slowly. Therefore, policy makers should develop more strategies to reduce gasoline consumption, for example, substitute goods, public transportation systems, and envi- ronmental standards settings. Keywords Gasoline Demand, Price Elasticity, Income Elasticity, Static Model, ECM, Dynamic Model