What is the Impact of High Gasoline Prices on Households Wha

What is the Impact of High Gasoline Prices on Households

What is the Impact of High Gasoline Prices on Gas Station Owners

Solution

If gasoline price increases, in the short run households would not decrease their demand for gasoline. In the short run, demand is inelastic as it takes time to find substitutes and replace the existing cars. Household cut their expenditure on restaurants, mall etc and save fuel cost. But if gasoline price increases day by day, in the long run, households demand will be increased for gasoline and they will find some substitutes. Gas station owners cannot increase the price quickly as they have fear to make a loss by decreasing demand. They buy gasoline from wholesale and sale to the households. So they have an inventory of gasoline. If they increase price suddenly and all inventory does not sell out then they would make a loss. In the long run, they decrease their supply in the response of high gasoline price.