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Economics IGCSE Price Elasticity of Demand
The concept of price elasticity of demand
Price Elasticity of Demand essay
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The article by Mike Moffatt shows the price elasticity of demand for gasoline. According to Molly Espey the average price elasticity of demand for gasoline in the short- run is-0.26 and -0.58 In the long-run, which is a 10% raise in the price of gasoline lowers quantity demanded by 2.6% in the short- run and 5.8% in the long- run.Also, there are a studies were conducted by Phil Goodwin, Joyce Dargay and Mark Hanly at review of income and price elastics in the demand for road traffic and each of them has different study. Furthermore, the realized elasticities depend on factors such as the timeframe and locations that the study covers. If the gas taxes will rise, will cause consumption to decrease. 2- In my opinion the article was so great
Since fuel is regarded as a necessity, the increase of fuel prices would have a certain impact on the Australian economy. This will have an effect on a variety of economic aspects which include; demand and supply, elasticity, market equilibrium and disposable income. The goal of this analysis is to discuss the effect that the rise in petrol, holding all things constant (Ceteris Paribus), will have on the Australian economy.
Regular gas nationally now averages around $2.65 a gallon, compared to $3.45 a year ago. Now the law of demand states consumers will buy more of the product if the price falls; of course when gas was at it's lowest peak everyone was driving around with there a/c on. They would use gasoline more often since it was not hurting their pockets as much. Now there is some instances where other goods and services can drop from gasoline prices. This can include a lawn mowing services and automotive business.
Currently, the most important factor in the rise of gas prices is the increasing cost of crude oil. Unfortunately, the United States has three percent of the world’s oil reserves. (Horsley) In 2009, the United States was third in crude oil production as well as the world’s largest petroleum consumer. (e. I. Administration) Such consumption required and still requires the United States to import petroleum/crude oil from other countries.
I am a husband and a father of four lovely children. We need a large vehicle to haul all of us around town. And of course I would do anything to keep them safe and I always want to provide them with the best. Therefore, after the birth of our fourth child two and a half years ago, my wife and I decided to upgrade our Ford Explorer to a Ford Expedition. We got everything from the side-curtain airbags to the TV and DVD player. What we did not know was we also purchased a rather large unleaded gas bill. The first time we filled the tank it cost us roughly $35; today it costs us right around $75 to fill the tank. Obviously the price of gas has increased significantly in the last two years. The price increase is due to a fluctuation in the supply and demand of not only gasoline but also crude oil, which is needed to manufacture gasoline. In addition, several other factors are influencing a change in the price of gasoline.
The recent surge in the cost of heating oil, diesel fuel, and gasoline in the United States has had significant impact on many sectors of the U.S. economy, but most importantly it has had quite a devastating affect on the trucking industry. This is important due to the fact that nearly “70% of U.S. communities rely solely on trucking for their supplies” (“ATA” 23). If the government continues it’s trend of non-intervention and refuses to place pressure on OPEC, the prices will continue to soar well over the two-dollar mark, and cause the trucking industry as a whole to shut down bringing the U.S. economy to a grinding halt.
The figure 4 shows the demand curve for a good with numerous close alternatives in consumption such as soft drinks or colas. To calculate the price elasticity of demand, first analyze the result when the price of a six-pack of sodas moves from $2 to $2.20, a 10% increase in price. However, the quantity demanded falls from 1,000 to 850, a 15% decrease in the quantity demanded. The price elasticity of demand of 1.5 measured here ensures that for every 1% change in the price of cola, quantity demand changes by 1.5% and it is clearly a relatively elastic
With a gasoline-fueled vehicle, buying gas to operate your car is a never-ending process. With the high price change of gasoline and oil, operating a gasoline-fueled vehicle tends to be very costly. While there are some types of small gasoline vehicles that get much better gas mileage than larger vehicles, even the most powerful gasoline cars will normally desire a contribution every month. According to some experts the only way a mainstream market for green vehicles wills materlize is with a pronounced and prolonged rise in fuel prices. (Buss, 4)
In this essay we will be elaborating on the concept of price elasticity of demand. To execute this objective we will cover how demand is impacted due to the change in price and how this is measured.
increase in a price of a good will subsequently lead to a fall in the
record. The spike in oil prices, up by over 60% since the start of the
Even though, the only substitutes for gasoline are public transportation, which isn’t always accessible, or electric cars, which is still considered a recent technology. If you’re living in a suburb in Chicago with good public transportation, you could start using these options to get to your destination, this would reduce your demand for gas by a lot. Yet, if you live in a suburban area, you would be more reliant on a vehicle, and your demand for gas would become inelastic. The short and long term demands for goods and services can vary, and this affects elasticity. For example, if the person’s gas demand was inelastic in the short-term, this could eventually become elastic in the long term. This person could buy a car that has better mileage, or buy an electric car which doesn’t require gasoline. For most products, long-term demands happen to be more elastic than short-term demands. Since gasoline is with a finite supply, it would eventually run out in the long-term. Yet, in the short-term inelasticity tends to overcome compared to the long-term. If we all drove vehicles that could go 50 mpg or greater gasoline would still be
According to The New York Times, “The crude oil prices presents a good opportunity for state governments to raise their gasoline taxes to help pay for road repairs” (Board). The raise of gas tax can help fix many things. According to Scott Burgess in his article “It’s Time To Raise The Gas Tax By $1 A Gallon” “The federal government needs to put a $1 tax on every gallon of gasoline sold, which would raise about $140 billion dollars a year, according the estimated 136.78 billion gallons of gasoline used by Americans, according to the U.S. Energy Information Agency” (Burgess). $140 billion dollars a year can change everything for America. It can stop all the cuts we are having to do due to the gas
Finally, many car companies make more efficient cars and hybrid cars. Companies trying to boost their sales through efficient cars and lower gas cost for the consumer. Because of the higher prices of gas consumers are looking for more efficient cars. Gas prices left big companies like Ford, Toyota, and Dodge slow which it had a direct effect in the economy and the workforce. Many people lost their jobs over the passed six months because of the effect of the slow economy.
Different economic factors affect the income elasticity of demand for new cars. One factors is the real income of the car buyers relative to car prices (Riley: 2011). New cars can be classified into three main categories, which are normal cars, luxury cars and inferior cars. For inferior cars such as the Volkswagen cars, when real income is rising, that is pay is increasing faster than inflation, people are likely to demand less of them and a fall in income leads to an increase in demand for them (Boundless:2013). They have a negative income elasticity of demand.
The United States has no formal carbon tax that the federal government imposes on its citizen or on big corporations. The states take it in their hands and tax the efficiency at which a car should run based on its “footprint”. (1) Since 1970 automakers have been able to produce new and much lighter, stronger metals and fuel efficient engines that can run for many years. Does this affect the price of fuel? Yes, it does and for a while it affects the price at the pump for consumers. But in turn, what it does is take scientist back to the drawing board to find better and new ways that fuel should burn, metals should break and strength even alternative composites. Before 1990 lead was used in fuels to lubricate the engine as well as cool it. Fuel is rated by its octane most of us is understood it as Regular, Unleaded and Super Unleaded gas, but octane has a numerical value and in the US, 3 different ratings. Octane Ratings can be referred to as the flashpoint at which a fuel will burn and the efficiency at which it burn cle...