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AQA GCSE · Question 20 · How markets work
Draw and label the effects of an increase in the price of petrol cars on the market for petrol.
Draw and label the effects of an increase in the price of petrol cars on the market for petrol.
How to approach this question
1. Draw and label the axes: Price (vertical) and Quantity (horizontal). 2. Draw an upward-sloping supply curve (S) and a downward-sloping demand curve (D1). 3. Label the initial equilibrium price (P1) and quantity (Q1) where S and D1 intersect. 4. Consider the relationship between petrol cars and petrol. They are complements (used together). An increase in the price of cars will decrease the demand for petrol. 5. Show this by drawing a new demand curve (D2) to the left of D1. 6. Label the new equilibrium price (P2) and quantity (Q2) where S and D2 intersect. P2 should be lower than P1, and Q2 should be lower than Q1.
Full Answer
An increase in the price of petrol cars will lead to a decrease in the demand for petrol, as they are complementary goods. This is shown by a leftward shift of the demand curve from D1 to D2. The result is a fall in the equilibrium price from P1 to P2 and a fall in the equilibrium quantity from Q1 to Q2.
Petrol cars and petrol are strong complements, meaning they are consumed together. When the price of petrol cars increases, the law of demand states that the quantity demanded of petrol cars will fall. As fewer people buy petrol cars, the demand for the fuel they use (petrol) will also decrease. This is represented on a supply and demand diagram as a leftward shift of the entire demand curve for petrol (from D1 to D2). The supply curve for petrol does not shift. The new intersection point results in a lower equilibrium price and a lower equilibrium quantity of petrol being bought and sold in the market.
Common mistakes
Shifting the supply curve instead of the demand curve, or shifting the demand curve to the right instead of the left. Also, forgetting to label axes and curves correctly.
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