Download Demand for petrol tends to be relatively inelastic which means that

Demand for petrol tends to be relatively inelastic which means that any
proportionate increase in price will have less than a proportionate decrease in
the quantity demanded. This means that if the price of petrol doubles then
there would be little effect on the amount demanded by consumers as petrol
is considered to be a necessity good. An increase in the price of petrol would
affect people on lower incomes more than those on higher incomes and if
more was spent on petrol, less money would be available to spend on other
goods and services.
Draw a diagram to show an inelastic demand curve. Demonstrate how
a change in price only changes the quantity demanded by a small
amount.
If the price of petrol increases, it could mean that fewer people would buy cars
as they would not be able to afford to run them. Petrol and cars are
complementary goods and have a negative cross elasticity of demand. This
also depends on the availability of substitutes for example if petrol substitutes
are readily available then an increase in the price of petrol would mean
consumers would switch their consumption – the demand for cars would
remain unaffected.
If more people want to use public transport as a substitute to using cars then
the government will need to invest heavily into the infrastructure of the
economy.
In the short run, consumers will continue to buy petrol but in the long run there
will be substitutes available. Consumers may start using alternative forms of
transport including bicycles. It may also be the case that in the long run
technology will change so that petrol consuming machines will be come more
efficient or that they might run on alternative fuels.
The supply of petrol depends on the amount of oil available in the world
market. Oil has many competing uses and is a finite resource. This means
that as the supply of oil decreases ie shifts to the left, then the price would
increase. The supply of oil also depends on the amount that OPEC and other
oil producing countries is willing to produce.
Draw a diagram to show an inelastic supply curve shifting to the left
and show new equilibrium.