Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?

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The question asks about the effect on present demand for petrol when news suggests its price is likely to rise next week due to global factors.

Option a. Contraction: This would imply a fall in quantity demanded now, which would typically occur if the current price rose. However, the scenario describes an expected future price increase, not an actual current price hike, so a contraction in current demand does not properly capture the forward-looking behavior at work here.

Option b. Increase: This matches the idea that consumers anticipate higher prices in the near future and want to avoid paying more later. As a result, they buy more petrol now, pulling forward their consumption and raising current demand.

Option c. Expansion: In economic terms, an expansion usually refers to an increase in quantity demanded due to a fall in price or an increase in income, or a shift of the demand curve due to a non-price factor that raises willingness to buy across many prices. The scenario describes a price expectation rather than a current price change or income effect, so describing it as expansion would be incorrect.

Option d. Decrease: A decrease in current demand would occur if buyers expected prices to fall or if their income or preferences shifted unfavorably. Since the news points to higher future prices, this option mischaracterizes the likely response and ignores the forward-buying motive.

MUF0061 Economics Unit 1 - Semester 2, 2025 Revision Quiz - Demand (10 - 15 minutes)

Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?

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