Cross Elasticity Of Fuel

Cross elasticity of fuel

Due to the situation of the pandemic situation in recent months in Peru, the fuel price has been unstable since it was affected by the scan demand for it, it is worth mentioning that within the products called fuels there is a significant rangeCustomer options such as: LPG (Petroleum Liquefied Gas) Diesel, Diesel Plus, Natural Gas, 98 Octane Gasoline, among others. The following trial will describe the fuel market situation in the country, which will work with the gasoline and diesel product. The work focuses on these products since they are the most demanded by the population and that in turn in recent years are acting as substitute vain given by the inclusion of new manufacturing designs in the motors of cars that gives the option ofUse of gasoline substitutes, in this case we will work evaluating its change in gasoline price with respect to the increase in the demand of the diesel product and the LPG, after examining its behavior, we will analyze the variation and effect on the market, it iswill evaluate the elasticity of the demand of these products explaining the cause and the possible panoramas that start this fact. Cross elasticity is a necessary tool to measure this behavior of variation in the demand of one product with respect to the other and that invertibly becomes a business opportunity for one and a possible problem or failure for other companies.

The elasticity of the demand is used to measure the price changes of a good with respect to the demand of another good that allows identifying the relationship between both goods to assess whether substitutes or complementary to each other.

The formula for the elasticity of the demand used in microeconomy is as follows:

• ECD = (change % in quantity demanded a)/(change % in the price of good b)
• Cross elasticity works with two goods, the price of "A" with respect to the quantity demanded of "B", that is: (Qa a-qia)/qia)/((Pab-pib)/GDP)

The quantity demanded of a good can also be affected by the changes experienced by the prices of other goods of the same item, in this case gasoline with respect to the increase in diesel demand. Therefore, to measure these effects, the formula for the elasticity of the demand for a good is used with respect to the price of another good and that is what is called the cross elasticity of demand. All this considering the percentage variation of the quantity of good X with the good and, greater, equal to or inferior to 1, which allows us to observe if they are products, substitutes or complementary.

"If the result is positive, it indicates that the price of" y "and the quantity of" x "vary in the same direction. If the result is negative, it indicates that the price of "y" and the quantity of "x" vary in the opposite sense "(the elasticity of demand). In this same sense, it is worth mentioning the difference of goods that we find given by its elasticity, these are: the complementary goods, products that depend on the other for its operation a clear example the amount of cars with respect to the price of gasoline;There are also substitute goods, this is presented with the ease that the customer has to change to another product with respect to the same line or product of the product or service such as the change in gasoline price and the change of consumption to the DIESES, LPG,among other products more profitable than gasoline itself;And finally, those who do not intervene in the heading of the other are known as independent vain that is to say the sale of apples with respect to the sale of shoes.

In Peru in recent years, the demand for gasoline has been decreasing slightly, this reduction is due to the increase in the number of vehicles available to the population converted to gas and the increase of vehicles operating with diesel;All this is mainly due to the price difference between gasoline and the other fuels mentioned for the use of cars in the transport sector. The diesel price is 11.031 pen per gallon and 2.9 pen per gallon and unlike the price of gasoline is 12.22 pen per gallon and 3.23 PER LITER MOST ACCESSIBLE Diesel consumption. The demand for gasoline has been diminished and by the contario, diesel consumption has increased, added to this, the presence of GNV must also take into account as an alternative fuel, which presented a high demand growth rate in PeruIf we compare the price of gasoline and diesel in recent years, the variation is made present relatively significant with 1. 19 pen between favoring the low diesel price.

It is necessary to mention that in 2010-2013 the price of gasoline was around 10.05 soles per gallon, while the demand for diesel has been taking a position in the fuel market, so “… the most consumed fuel at the residential level was diesel, followed by 90 octane gasoline and gasolineof 84 octane. The monthly spending on fuels totaled an estimate of almost 270 million soles mainly in diesel … " . Also,

“The preference of the GNV as an alternative product since the use of the same can generate savings of 19,000 soles per year optimizing in turn the amount of kilometers possible to travel, according to figures of the Association of Taps and Service Stations of the service of thePeru (AGESP), the use of GNV generates a savings of 900 million soles per year in the transport sector, compared to other fuels. In addition, it is 55% cheaper and profitable than gasoline, 29% more than LPG and 39% more than diesel ”.

The replacement of gasoline with diesel is given since according to experts in motor mechanics of vehicles such as Javier Gómez the "… gasoline has more nerve, while the diesel consumes less and optimizes the operation of the vehicle …", so thatThose gasoline operating engines demand greater consumption, while diesel operation generates a higher performance and time management time as well as LPG. "Diesel contains high dose of latest generation additives that maintains engine power and prevent dirt gradually accumulating in the internal parts of the engine". The increase in diesel and LPG consumption and a slight decrease in gas demand, can consider the greatest demand for substitute products to gasoline, considerable from the point of view of the consumer learning to see the price difference between the twofuels during the period and approve the purchase of diesel and LPG. However, through the crossed price elasticity of demand, it is found that only diesel and GNV behave as substitute goods, while for the rest of the relationships (gasoline-diésel and gasoline-GNV) there is a behavior of a behavior ofcomplementarity

"Diesel behaves as a good suit for the consumer, because the diesel industry has a wide range of transport that makes use" such as: heavy vehicles, public transport, minor vehicles, and although minor vehicles canBeing acquired by the population of median and high economy, public and cargo transportation are necessary goods for the medium-low and low population population.

Likewise, other factors that could influence the measurement of the cross elasticity of the demand is limited by political transport factors, geographical location factors as well as demographic where a fuel supply point for a vehicle can be considered available for a vehicle, the distances and accessibility that a user may have to this, as well as the demography and/or concentration of the masses in strategic points where the population usually concentrates requires greater demand, as we consider the prices of90 Plus gasoline in Nuevo Lambramani Services and Gasocentro station which is equivalent to 13.9 soles per gallon compared to the price of comparative at the price of gasoline 90 plus at 11.09 of Andean Automotive S.A. And therefore the limitation of resources, technology existing in the country or city where a fuel establishment is located to the public.

In conclusion, cross elasticity was considered to. In the case of the Peruvian market, diesel consumption is slightly replacing gasoline consumption, unlike other countries such as Colombia, the Peruvian market in terms of the consumption of gasoline dieses and substitutes has great potential that could be developed in some10 years. All this is being given by different factors, but the most important accessibility to the diesel price who in turn improves the performance of its vehicles and optimizes its operation.