MYTUTOR SUBJECT ANSWERS

411 views

What are the effects on UK businesses after an increase in fuel prices?

Due to the UK economy being heavily dependent on fuel, it is inevitable that an increase in fuel prices will affect almost every UK business. However these affects can vary from sector to sector.

Firstly, fuel prices have a direct effect on transport costs and thus their distribution costs, these drive up production costs and hence lower profits. Transport firms are likely to suffer the most however, as rising fuel prices mean ticketing costs increase which affects them more due to the nature of the industry (being heavily fuel dependent).

If the price rise persists in the long run, this may lead to lower demand for cars but a higher demand for bicycles as economic agents adapt to the changing environment. This may also lead to many people to go on holiday nearer from home and shop nearby, which in turn could help the national tourism industry and local corner shops. 

It has to be suggested however that demand for fuel is likely to be inelastic and so an increase in the cost of production will only have a small impact on reducing demand as firms can easily pass on most of these costs to the consumer, and thus maintain most of their profits. Therefore the impact on businesses could be limited.

Firms can also adapt by being more fuel efficient in the long run, this reduces their dependency on fuel and thus a future price rise may not affect them as much as before. 

Tejan S. GCSE Economics tutor, A Level Economics tutor, GCSE Maths tu...

8 months ago

Answered by Tejan, an A Level Economics tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

65 SUBJECT SPECIALISTS

£30 /hr

Akshay D.

Degree: Finance Accounting & Management BSc (Bachelors) - Nottingham University

Subjects offered:Economics, Geography

Economics
Geography

“About Me: - A Second Year Student studying Finance Accounting & Management  - Tutored Economics and Geography in the past to younger students.  - I am a trust worthy individual who will provide a first class high quality service to e...”

£20 /hr

Dan M.

Degree: Economics (Bachelors) - Durham University

Subjects offered:Economics, Maths+ 1 more

Economics
Maths
Geography

“About me: I am a first year economics student at durham university, and I am really enjoying learning more and more about my favourite subject. I hope that I instill some of my passion for learning into all of my pupils. I have experi...”

MyTutor guarantee

Tom H. A Level Economics tutor, A Level Maths tutor, A Level Spanish ...
£26 /hr

Tom H.

Degree: Economics (Bachelors) - Durham University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
French
-Personal Statements-

“Highyl reviewed tutor from Durham University, ready to help you improve your grades, all the way to A*.”

About the author

Tejan S.

Currently unavailable: for regular students

Degree: Economics (Bachelors) - LSE University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
Further Mathematics
-Personal Statements-

“Hi everyone! My name is Tejan Shah and I am an Economics student at the London School of Economics looking to teach Economics, Mathematics and Further Mathematics A-Levels and GCSE, as well as provide significant assisstance with pers...”

You may also like...

Other A Level Economics questions

What is Macroeconomics?

What is meant by the term 'opportunity cost'

To what extent is the national minimum wage beneficial to society?

Assess macroeconomic policies which might be used to respond to rising commodity prices during a period of slow economic growth

View A Level Economics tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok