Fuel prices 'keep cars off road'

It is generally assumed that the demand for petrol is relatively price inelastic, hence the increasing duty that has been imposed over the years. But we may now have reached a price that is startring to encourage some motorists to reconsider their transport options if a report by the AA is to be believed. High prices of petrol and diesel are making UK drivers think twice about travelling by car, a survey suggests. The AA polled 17,500 members, and found 27% had cut back on other areas of spending, 16% had decided to travel less by car, and 21% had done both. Petrol prices have risen sharply this year, although government figures have only shown car traffic falling 2%. The Petrol Retailers Association says that average prices could go up as much as 5 pence a litre by the weekend. Link to BBC News.

Why do you think 27% had 'cut back on other areas of spending' to maintain their perol or diesel consumption?

How do firms set prices?

For economics students, obsessed with demand and supply diagrams, setting prices is child's play. But how do firms set their prices? What information do thay need to set a price that will hopefully clear the market. An interesting article in the FT, offering advice to firms about what to consider when setting prices in an economic slowdown. A key factor is to 'understand how price-sensitive customers will behave - and act on that knowledge more quickly than competitors'. Price sensitivity, a concept that should be familiar to students. Read the FT article here.

The rising price of bread

The price of bread is the highest it has ever been. It's all down to the rising cost of wheat, which has doubled in the past year alone. What is going on? A good analysis of the complex pressures across the world that are affecting the bread market.

http://www.guardian.co.uk/environment/2008/apr/16/food.ethicalliving

Do you think prices are likely to go higher? How could consumers respond? How price elastic is the demand for bread? What type of good is bread?