Higher Gasoline Prices and Hybrid Car Demand

In the summer of 2008, the price of gasoline increased to a little over $4.00 per gallon. Americans did not drive appreciably less for the few months that this price increase held. They also did not rush out and buy

a large number of gasoline-electric hybrids such as the Honda Civic hybrid. This hybrid is advertised as getting about 50 miles per gallon in city driving as compared to the standard Honda Civic that gets an advertised 30 miles per gallon in city driving. The average family drives about 12,000 miles per year.

The Honda Civic costs about $17,000, and the Civic hybrid has a price of around $24,000.

Can you explain why the short-run increase in the price of gasoline had a very small effect on the demand for Civic hybrids?