The Impact of Rising Oil Prices on the South African Economy in Relation to the Demand and Supply of New Motor Vehicles

1172 Words Nov 18th, 2008 5 Pages
TABLE OF CONTENTS

INTRODUCTION. 1
SUPPLY VS DEMAND 2
FINDINGS 6
PRIMARY FACTORS. 7
CONCLUSION. 7
REFERENCE. 9

THE IMPACT OF RISING OIL PRICES ON THE SOUTH AFRICAN ECONOMY IN RELATION TO THE DEMAND AND SUPPLY OF NEW MOTOR VEHICLES.

INTRODUCTION

A continual upward trend in the price of crude oil in recent years has led to increasing concerns about its economic implications, both abroad and in South Africa. This study looks at the rising oil prices and their impact on the South African economy within the framework of supply and demand, looking at the impact rising oil prices has had on demand and supply for vehicles as well as the impact on South African GDP growth. Cognisance must be taken of the fact that this
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PRIMARY FACTORS
Taking into account the primary factors that can cause a change in demand (or a shift in the demand curve) are
• consumer income
• prices of related goods
• advertising and consumer preferences
• population
• seasonal factors
Understanding these factors in relation to rising oil costs and vehicle demand makes it possible to predict the market response to real economic events.
Consumer income
Over the year’s South African consumer income has increased which has resulted in an increasing demand of motor vehicles. The demand for inferior goods (i.e. public transport) decreased as more people chose to purchase their own vehicles.
Prices of related goods
Changes in the price of related goods (substitutes and complements) leads to changes in demand. An increase in the price of Oil as a complement good has caused a decrease in the demand of Motor Vehicles especially since the late 2006 when there has been a steep increase in the oil prices.
Advertising and consumer preferences
Consumers are becoming more environmentally conscience and this has resulted in a steady demand for eco-friendly modes of transport. With the introduction of hybrid vehicles as well as plans to improve public transport within South Africa consumers are becoming less reliant on the necessity of a motor vehicle as an only means of transport.
Population
The growing increase in population of consumers has increased demand.

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