Please help with price elasticity of demand and supply curves for petrol when it is inelastic.?

Question

The price elasticity of demand and supply for petrol is inelastic. How would you draw a graph representing an increase or decrease in the price of petrol in terms of the shifts of the demand and supply curves?

Answer 1

Inelasticity indicates that price elasticity of demand is less than one, so that for a 1% change in price there will be a less than 1% change in the quantity demanded.

It's clear you're in a European system, so I'm not sure if the terminology is distinct from American terminology, but generally, a shift of the curves indicates something other than price being an issue. In other words, a curve shifts if for ALL prices there is to be a change in the quantity demanded or supplied, not just for the price difference in question. Hence, elasticity really does not come into play in shifts.

Answer 2

Your first responder guy was correct in that elasticity values/coefficients less than one are inelastic, thus consumption and supply are relatively unresponsive to price changes. This may be a trick question however, because change in price for the product under discussion does NOT shift a schedule. You would move along the existing schedules and therefore witness a product shortage if price went down and a product surplus if price went up. Because both schedules are graphed very steep (almost vertical) the degree of surplus or shortage would not be as great should the schedules have been more elastic or flat. I just don't see how changing price would shift either schedule. Price is an axis variable, and changing an axis variable does not cause a schedule to shift, we just change our location on the existing schedules.

Answer 3

inelastic means lines for supply and demand are nearly vertical, i.e. same quantity is consumed (or produced) regardless of price.

You shift the curves left or right.

I would not call supply of petrol inelastic, especially in the long term - oil companies will just buy less oil and make less petrol if the price falls.