In India, retail price of petrol has significantly fallen during the past six months. But, demand for cars has not shown any significant rise. Comment.

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Solution

Car and petrol are complementary goods. A significant fall in the price of petrol is expected to induce a rise in demand for cars. But it did not happen. The reason is as this:
Car is expensive consumer good.
Demand for cars is expected to rise only when:
(i) there is a significant rise in income of the buyers, or
(ii) there is a significant fall in the price of cars, or
(iii) there is a significant cut in the interest rate for car loans.
None of these factors has shown any positive change during the past six months. Accordingly, demand for cars has not shown any rise in response to fall in petrol price in India.

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Similar questions

(I).The price of aircraft fuel has risen during the past few months

(II). Many passengers airlines in India have been forced to cut their air fares by about 10%.

Effect: During the last six months the sale of four wheelers has come down in comparison to the sale of four wheelers last year for the same period.

Which of the following can be the possible cause for the effect mentioned above?

I. Government has increased the excise duty on the four wheelers from the beginning of this year.

II. Cost of petrol has increased immensely during the last eight months.

III. Interest rates on car and home loans has been increasing from last seven months.

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