Answer to Question #35573 in Microeconomics for mayank manav

Question

how petrol has inelastic demand?

Answer 1

Because people need to drive. So even if the price of gas doubles, the demand is not significantly impacted. It is difficult to reduce your own consumption of gas without making big changes (buying a fuel efficient car, taking more public transport, driving less). And even with gas prices the way they are in the US, the financial impact of $3 gas vs $1 gas is still less than the cost of auto insurance, so in real terms the impact is not great on the average American. In Europe, much higher prices has fueled demand for diesel cars but driving habits have not changed significantly.