Comment on the long and short term cross-price elasticity of demand for petrol and diesel.

The short-term XPED for petrol and diesel is likely to be very low, as most consumers are unable to quickly switch between the two fuels for their vehicles. However, if there is a significant difference in perceived value between the two fuels, consumers will tend towards the better value fuel. Since fuel represents a sizeable cost for a lot of consumers, namely transport firms and commuters, the long term XPED will likely be quite elastic.

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Answered by James S. Economics tutor

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