Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?Single choice
A
a. Increase
B
b. Expansion
C
c. Contraction
D
d. Decrease

Question

Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?

BlackTom AI · Accepted Answer

When the price of petrol is expected to rise, the immediate effect in the short run is typically a movement along the demand curve, not a shift of the entire demand curve. This means the quantity demanded decreases as price increases.
Option a: 'a. Increase' would imply that higher prices cause more demand, which contradicts the fundamental law of demand. Generally, higher prices discourage buying, not encourage it.
Option b: 'b. Expansion' refers to the situation where higher prices lead to more quantity demanded, or when a lower price causes more demand; neither fits the scenario of a price rise for petrol.
Option c: 'c. Contraction' correctly describes a decrease in quantity demanded due to a higher price, i.e., a movement up along the demand curve rather than a shift of the curve itself.
Option d: 'd. Decrease' might seem plausible, but in standard microeconomic terminology, the precise term for the response to a price increase is a contraction of quantity demanded, not simply 'decrease' without indicating the mechanism.
In sum, given an anticipated price rise next week, consumers would typically buy less petrol now, reflecting a contraction in quantity demanded as price moves up the curve.

Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?Single choice

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