Rising Oil Prices’ Effects on Transport Usage

Subject: Economics
Pages: 3
Words: 713
Reading time:
3 min

Effect of oil prices on demand for kilometers traveled

The rising of oil prices prompts governments across the world, from EU countries to the United States, to increase or decrease interest rates so as to control their economies. Because of a continuous rise in the prices of petroleum products, the industries increase the prices of the products, and this leads to inflation. Inflation refers to a persistent increase in the general price level over time. By analyzing the recent economic events, inflation has got a number of effects on an economy. The following are the effects of inflation in kilometers traveled. Due to inflation, fares will be increased. As fares are increased, demand for the transport will come down, thus reducing the kilometer covered. The demand curve below shows the effect of oil prices and kilometers traveled.

The demand curve shows the effect of oil prices and kilometers traveled.

At a price of P1, the demand for kilometers to be traveled is Q4. This reduces as the price of oil increases. When there is an increase of price to P2, P3, P4, kilometers covered changes to Q3, Q2, and Q1, respectively. This means that the quantity demanded changes as a result of price changes only, and there is movement on the upward in the demand curve. This shows there is an inverse relationship between the price and quantity demanded, i.e., the higher the price, the lower the quantity demanded ceteris paribus.

Effect of oil prices on motor vehicle usage

The importance of oil in the price elasticity of supply and demand in motor vehicle usage cannot be ignored. The supply and demand for oil products are inelastic; this is because the product has few substitutes. Although alternative energy is a substitute for oil, it can not be used in motor vehicles; this that motor vehicles have to use oil. If the motor vehicle does not get oil products, they do not have any options of a product to use. This is inelasticity of price. From both the point of view of a professional economist, it is inelastic. Currently, the price elasticity of supply and demand for oil products is high. The price elasticity of oil products causes inflation, thus causing the cost of maintaining the vehicle to go high. Even there is an increase in the prices of oil, the demand for the motor vehicle will remain perfectly inelastic. The graph will be as;

Graph of demand for the motor vehicle will remain inelastic.

The demand for four cylinders versus six-cylinder motor vehicles

The current rise in the oil prices experienced by the whole world has led to shocking increases in basic everyday commodity goods. The effects as to what creates the situation in the first place are examined. The choices that are present before the consumer, like the reducing oil tank for vehicles, are examined and evaluated as to what kind of future awaits it.

The kind of increase in the fuel prices being experienced by the whole world is triggered by a combination of factors. The major cause of this sharp spike in the prices is the demand coming from India and China as they too seek energy sources in order to supply the industrialization that is happening to them. Considering that they are the most populous countries in the world, their sheer size in volume alone makes for a staggering amount of energy demand. Their middle-class population is steadily increasing, and they are all going to demand the same luxury and comforts that the first world nations already have. Despite the increased demand for petroleum products, the oil-producing countries simply can’t manage to pump it out of the ground fast enough. The sharp increase in the demand will not be easily be met by the increased efforts for more oil wells and production as it can take years to increase the supply. The world population is now reducing oil consumption. This has called for a reduction of the oil tanks to use.

Graph price to quality demanded.