Explain, with the help of diagrams, the effect of an increase in the price of petrol is likely to have on (i) The market for cars. (ii) The market for coal.

The petrol market over the past decades has had many price fluctuations and it is important to understand that changes in the price of petrol can have significant effect in other markets such as the market for cars or the market for coal. Take as an example an increase in the price of petrol. For the market of petrol, according to the laws of demand and supply, this means that there will be a decline in the demand for petrol, shifting the demand curve for petrol to the left (diagram). However, what is the effect in the market for cars? Cars and petrol are two complementary goods, this means that when one of the two goods is bought so is the other one. In other words any change in the demand for one good will have the same change in the demand for the other good, therefore an increase in price of petrol will lead to a decrease in demand for cars, shifting the demand curve to the left. (diagram) Furthermore, a change in the price of petrol can have an effect on the demand for coal. This is because coal and petrol are substitute goods, this mean one of th goods can be used instead of the other. Therefore, if there is an increase in the price of petrol, coal will appeal more to consumers as it will become cheaper relative to petrol. Therefore, more people will shift towards coal and the demand for coal will increase, shifting the demand curve to the right. (diagram)