When the price of petrol is anticipated to rise, people queue up at petrol pumps. What is the reason behind this?
Question
When the price of petrol is anticipated to rise, people queue up at petrol pumps. What is the reason behind this?
Solution
The reason behind people queuing up at petrol pumps when a price rise is anticipated can be explained through the principles of economics:
-
Anticipation of Higher Costs: When people hear that the price of petrol is going to increase, they anticipate higher costs for the same amount of petrol in the future. To avoid this, they prefer to buy more petrol now, at the current lower price.
-
Stockpiling: People may also decide to stock up on petrol if they have the means to store it. This is again to avoid the higher costs that they would have to incur in the future.
-
Fear of Shortage: Sometimes, the news of a price rise can create a fear of shortage or unavailability in the future. This fear can drive people to queue up at petrol pumps to ensure they have enough petrol, even if they don't need it immediately.
-
Rational Behavior: Economically, this is considered rational behavior, as people are trying to maximize their utility (benefit) by getting the most petrol for their money before the price increases.
Similar Questions
Explain the meaning of ceiling price and state a reason for the government to implement it on petrol.
Two major consequences of imposing maximum prices are longer queues and the emergence of parallel markets.
Consumers often end up paying more than they need to for their energy. With reference to rational behaviour, explain the likely reason for this.
Explain the speculative demand for money and its relationship to the liquidity trap.
A market shift that encourages buyers to increase the amount they wish to purchase at any given price is called a shift. (Insert a single word.)
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.