Economics – Economic methodology | e-Consult
Economic methodology (1 questions)
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Answer: Ceteris paribus, an increase in the price of petrol would lead to a decrease in the demand for private cars. This is because higher petrol prices increase the cost of operating a car, making it a less attractive option for consumers. Consumers may choose to drive less, switch to more fuel-efficient vehicles, use public transport, cycle, or walk instead.
However, the actual outcome might be different due to other factors.
- Income Levels: If consumers have high disposable incomes, they may be less sensitive to petrol price changes and continue to demand private cars.
- Availability of Alternatives: If there are limited viable alternatives to driving (e.g., poor public transport infrastructure), the demand for private cars may be less affected.
- Government Incentives: If the government introduces subsidies for fuel-efficient cars or public transport, this could offset the impact of higher petrol prices and maintain demand for private cars.
Therefore, while ceteris paribus suggests a decrease in demand, real-world outcomes are often more complex and influenced by a range of interacting factors.