Answer to Question #309907 in Management for Oprud

Question

What are the effects of fuel price fluctuations on the household transport expenditure.

Answer 1

With the interconnected nature of the economy, in which outputs of each sector is taken as an input by some or all other sectors to produce its own output, it follows that a price increase on a commodity, for example fuel, will result to an increase in the production cost of all sectors using that commodity as an input. Ultimately, these additional cost increases are passed over to the buyers. Because of the importance of fuel in the production, marketing, and transportation of goods, increases in these costs result to increases in prices of goods, forcing more households to fall below the poverty line. The effects of energy price have been studied primarily in terms of their effects on aspects of travel behavior, both in the short and long term. In the short term, people may adapt their driving style, departure time, travel mode choice, route choice or destination choice. In the longer run people may consider buying a smaller or more efficient car. 

Generally, an increase in fuel prices tends to reduce total travel time, while within certain time constraints, different activities and trips compete for the zero-sum property of time. Since work and school related activities are mandatory, they are of the highest priority compared to other activities.