The article from 'The Sun' a newspaper's website (http://www.thesun.co.uk/sol/homepage/news/money/4491722/Petrol-will-hit-a-new-record-high-within-a-MONTH-motoring-chiefs-warn.html) is mentioning about the price of petrol is rising within two month. It will hit the new highest price of petrol. Drivers have to spend more on petrol in the beginning of July. According to the law of demand, as the price increase, the quantity demanded with decrease. The quantity demanded is varies inversely with the price as long as other things remain the same or ceteris paribus.
From the graph A above, point A (the black dotted line) is the price and quantity demanded before the price rises. P1 is the price of petrol that is before the increase of price, Q1 is the quantity demanded before the rising of price. After the price rises, it shows by point B (the red dotted line), the price of petrol increases from P1 to P2. The quantity demanded also increases as well, which is from Q1 to Q2. Since petrol is relatively inelastic demand, the demand curve is steeper. Therefore, the percentage of change in quantity demanded is less than the percentage of change in price. In other words, the quantity demanded will have a little change, even though there is a high degree of change in price. Price inelastic demand is occurring if the goods or services are less substitution and it is necessity.
The change in total revenue is depending on the price elasticity of demand for the product. From the graph B above, the maximum total revenue is the price when the product is unit elastic demand. The arc on the left side of maximum total revenue (point A) is the change of total revenue when the price is changing on elastic demand product. In contrast, the arc on the right side of the maximum total revenue (point A) is the change of total revenue when the price is changing on inelastic demand product. The total revenue of elastic demand product increase when the price decrease; However, the total revenue of the inelastic demand product decrease when price decrease. Hence, as the demand for petrol is inelastic, the total revenue of suppliers will increase when the price is increasing.
Besides that, the law of supply is when the price increase; the quantity supplied will increase. The quantity supplied will increase if the price raises and fall if the price falls, as long as other things do not change or ceteris paribus. From the graph C above, point A (the black dotted line) is the price and quantity supplied before the price rises. P1 is the price of petrol that is before the increase of price, Q1 is the quantity supplied before the increase of price. After the price rises, it shows by point B (the red dotted line), the price of petrol increases from P1 to P2. The quantity supplied will also increase from Q1 to Q2. The quantity supplied for petrol increases because the price rises and this allows the suppliers to gain more revenue. Surplus may occur because suppliers are trying to supply more while there are decreasing in demand. This will occur overproduction which is one type of market failure.
Furthermore, the increasing of petrol price also will affect the investment of government in public transport. When the price of petrol rises, drivers are spending more money on petrol. Thus, consumers may prefer to use public transport rather than use their own car. The quantity demanded for public transport will increase. In order to prevent shortage in public transport, the government may spend more on the public transport to increase quantity supplied, for example purchase more buses and hire more bus driver. As there is more public transport supplied by government, the quantity supplied of public transport increases. Therefore, the quantity supplied of public transport will increase to meet the quantity demanded of public transport.
Ron 95 and Ron 97 are the two types of petrol that are standard at all petrol stations in
The difference of the both types of petrol is the degree of energy that can be
produced. The degree of energy produce by Ron 97 is more than Ron 95, so Ron 97
is more expensive. As petrol price rises, some drivers who are using Ron 97 may
switch to use Ron 95 as substitution of Ron 97 in order to save money. The
quantity demanded of Ron 95 will increase as more drivers are willing to use
Ron 95. As the price of petrol is rising, the suppliers of petrol are willing
to supply more Ron 95 to gain more revenue as well as meet the quantity
demanded. Therefore, the quantity supplied of Ron 95 will increase. On the
other hand, the quantity demand of Ron 97 will decrease. Since the price is
rising and the demand for Ron 97 still exists, the suppliers of petrol will
increase the production of Ron 97 to increase their revenue. However, the
quantity demanded of Ron 97 will decrease because the price rises and
substitution of Ron 95. Malaysia
In my opinion, I think the government should remove the subsidies on the petrol and increase the petrol price. As price of petrol is higher, the quantity demanded of petrol will decrease. Therefore, this will lead to decrease the usage of petrol and reduce the greenhouse gases in the world. Thus, we can life in a better quality of environment.