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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.