Elasticity

Price elasticity of demand is the sensitivity of the quantity demanded towards a change in price. It express how sensitive the buyers are towards the rise in the price of a product. (economicsonline, 2015)

The 3 types of price elasticity of demand is price inelastic, price elastic and unit price elastic. In this event, the demand of fuel in Brazil is inelastic because the quantity demanded in the country does not vary much as the price of fuel changes.

Brazilian continues to buy fuel as it is a necessity and affordable for car drivers to operate a car. Additionally, there are only a few substitutes of fuel in Brazil such as ethanol and gasoline, so the price elasticity of demand is low.

However, the fuel is not perfectly inelastic as it is slightly responsive to price, people that could not afford much will cut down on consuming the fuel such as carpooling, going to the store and the places in one trip instead of two. (resilience, 2015)

In the diagram, it shows that when the price increases from to , quantity demanded decreases from to . For example, 10% climb in the price of fuel sinks quantity demanded by 2.6%. However, in Brazil there are only a very less amount of substitutes and it is impossible for all the consumers to switch the type of fuel consumed as it takes time to adjust.

Although consumers will prefer a cheaper and valuable source of fuel, it could not go any further as the substitutes are very less. Gasoline is a necessity which differs it from luxury goods, if the price of luxury good increases, people will tend to switch the brand.

However, for the necessity goods such as gasoline, they have no choice but to continue purchasing gasoline when the price increase, since they cannot carry out daily activities without fuel.