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Economics of Using Fuel Vouchers

In: Business and Management

Submitted By richo22
Words 1071
Pages 5
The economics of fuel discount vouchers and consumer behaviour

Why is it that a rational person will spend extra money at the supermarket, to get a fuel discount voucher, then spend extra time driving to a specific service station to use that voucher.

Fuel discount vouchers are provided when a customer at a supermarket, generally Woolworths or Coles, spends over $30. In the past this discount has been up to 30 cents per litre discount but the ACCC in 2014 will limit these discounts to 4 cents per litre only (King 2014:1). The fuel stations and supermarkets are ‘bundling’ their products to attract more customers however there are fears that this may cause ‘price discrimination’ (Gans & King 2004:313), although bundling can help some consumers (King 2014:2 & ACCC 2004).

In economics products are talked about as being elastic or inelastic in their demand. Gans TEXT yr:56) identify that ‘necessities tend to have inelastic demands, whereas goods that are luxuries have elastic demands’. In the long term fuel is elastic (Sterner 2007:3194, Graham & Gleister 2002:23 & Brons et al 2007:2105), because people change their travel habits or the type of car they drive. We will focus on the short term where fuel demand is inelastic (Sterner 2007:3194, Graham & Glaister 2002:21 & Brons et al 2007:2105). The fact that fuel demand is inelastic means that purchasing behaviour is not determined by the price. So if the price of petrol goes up or down people will continue to drive, and there is not a substitute product for petrol to run the car.

The RACQ (2014) worked out the average cents per kilometre for each common type of vehicle when driven on the road (Figure 1). This incorporated the fuel, tyres and service repairs. It costs a small vehicle 60.27 cents for each kilometre driven on the road. The fuel price used is 153.90 cents per litre, which is based on the average…...

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