Using a diagram, relate the high petrol prices with demand for higher cc engine cars.This refers to statment -"The impact of high petrol prices on cars with higher cc engine would be minimal..."
Many Americans prefer a car with a smaller engine or a hybrid car if they can choose. The recent government program, Cash for Clunkers showed data that Americans want cars with smaller engines. In the Cash for Clunkers program, the usual miles per gallon for the car traded in was: 15.8 mpg and the usual miles per gallon for the car they bought was 24.9 mpg.
In addition when Americans were interviewed on the type of car they want, many said they wanted a hybrid because of high petro prices.
Increase in petrol prices tends to reduce the demand for petrol. This means consumers are likely to reduce the quantity of petrol used by them. This can be done by them in one or more of the following ways.
- Reduce the the usage of their care without changing the the type of cars used. This kind of consumer response can be immediate upon increase in petrol prices.
- Change to using cars that have lower petrol consumption per kilometer. This can be achieved by using car with lower cc engine. It is also possible to have cars with comparable cc engine yet lower petrol consumption by improving efficiency. This kind of response from consumer to reduce petrol consumption may be slower as it is not possible to change cars every time petrol prices are changed.
- Using cars that consume alternate fuels or other power sources like electricity. Customer response in this form is likely to be slowest because the technology of cars using alternate power sources is still developing.
Theoretically, increase in price of petrol will reduce demand for cars with higher cc engine and more efficient cars. The trend of declining preference for petrol guzzling high powered car is an indication that this is happening in practice also. However, the actual shift in demand of cars between high and low cc engine cars will depend very much on their elasticities of demand. For example, people who use Rolls Royce cars are not likely to shift to lower cc engine cars because of rising petrol prices.
It should be noted that the statement quoted as an explanation to the main question above also accept that there will be some impact of high petrol prices on cars with higher cc engine, although it would be minimal.