Impact of Petrol and Diesel Price Cut on the Demand for Cars in India

Introduction:
In December 2014, the Indian government reduced the prices of petrol and diesel by Rs 2 per litre each as international oil prices had hit a five-year low. This move was aimed at providing relief to consumers who were struggling with high fuel prices and also to boost the economy. In this response, we will analyze the impact of this price cut on the demand for cars in India using economic theory and a diagram.

Effect on Demand for Cars:
The demand for cars is affected by various factors, including the price of the car, the price of fuel, income levels, and consumer preferences. In this case, we will focus on the impact of the reduction in fuel prices on the demand for cars.

Increase in Consumer Purchasing Power:
When the prices of petrol and diesel are reduced, the cost of running a car decreases. This means that consumers have more disposable income to spend on other goods and services, including cars. As a result, the demand for cars may increase.

Shift in Demand Curve:
The reduction in fuel prices will cause a shift in the demand curve for cars. The new demand curve will be to the right of the original demand curve, indicating an increase in demand at each price level. This shift is shown in the diagram below.


Source:

Conclusion:
In conclusion, the reduction in petrol and diesel prices is likely to have a positive impact on the demand for cars in India. The increase in consumer purchasing power and the shift in the demand curve are both factors that will contribute to this increase in demand. However, other factors such as income levels and consumer preferences may also play a role in determining the overall demand for cars.