Petrol Market

PETROL MARKET 














Elasticity is mean ‘the extent of reaction’ of prices. In economics, it refers to a variable (quantity demand of goods or quantity supply of goods) on another variable (prices of goods or customer income) changes in the response. It is usually the percentage change in the two variables.

• Why the prices of daily necessities decreases, the quantity demand will increases?

It’s because the prices must be from goods after the change
the quantity demand will change in the purchase of consumer 
response sensitivity of up analysis. 

Formula : Price Elasticity of Demand

Ed = Change in Quantity  / Sum of Quantities divided by 2 

       * Change in Price  / Sum of Prices divided by 2 

              

Inelastic VS Elastic

1. As we say a good is price inelastic, when an increase in price causes a smaller % fall in demand.

Example, 

if price of petrol falls 30%, but demand for petrol only increases 10%  the PED (Price elasticity Demand) = - 0.33

Petrol has few alternatives because people with a car
need to buy petrol. 
For many driving is a necessity. 
There are weak substitutes, such as train, walking and the bus. 
But generally, if the price of petrol goes up, demand proves very inelastic.

1. Or we say a good is price elastic when an increase in prices causes a bigger % fall in demand.  

Example, 

if price falls 20% and demand increases 80%, the PED (Price elasticity Demand) = -4.0

Shell petrol. 

We say that petrol is overall inelastic. 
But, if an individual petrol station increases price, 
people will buy from other petrol stations. The only exception is if a petrol station 
has a local monopoly 
e.g., at service station on the motorway there is a captive audience. 
But, in a city center with many alternatives, 
people will have an elastic demand.

[ sources : http://www.economicshelp.org/blog/497/economics/elasticity-in-the-petrol-market/ ] 

Writen by : Teh Li Wei