Is Petrol Elastic or Inelastic?

302 Words2 Pages
In this essay, I will be discussing whether the demand for Petrol is Elastic or Inelastic, analysing whether it has substitutes and the factors that may affect its demand or supply. To a substantial extent, Petrol is Inelastic as it isn't influenced by many other factors. The demand is price inelastic as you need petrol regardless of price, and supply is similar price inelastic. In a hypothetical situation, if the price of Petrol was to increase in comparison to its normal price, the amount demanded does not decrease significantly with price, this is because infrastructure is dependent on petrol, and because there isn’t any other strong substitute to petrol, we can’t easily switch to another fuel source without significant development in infrastructure. For example, when petroleum prices rise people reduce the amount they drive but they can rarely eliminate it. However, if you are a car owner you don’t really mind who you buy petrol from. Esso petrol is not really any different to petrol from Tesco. Therefore, consumers are sensitive to changes in prices for an individual petrol station. • If there are many petrol stations close by the petrol companies will find that there demand is elastic. Increasing price could lead to a loss of market share. • However, if you are the only petrol station in a rural area or if you are a petrol station on a motorway, you have a lot more market power. A motorist is not going to exit the motorway just to avoid paying motorway prices. Therefore, in these locations the petrol stations have more market power, consumers less choice, demand inelastic; and this is why petrol is more expensive. • Maybe it means that the higher the market share the lower the PED. the less market power a petrol station has the more elastic demand
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