IRISH CASE STUDY:
Chapter 5: The Effect of Price and Income on Demand Quantities

Advice for Motorists - Shop Around for Cheapest Petrol
by Liam Gallagher, Department of Economics, University College Cork.

This case follows the demand in petrol consumption in Ireland. Consumers appear not to be sensitive to petrol price increases. They even are slow to change from their regular petrol station. Although there has been a dramatic fall in the demand for "super unleaded" and "leaded" petrol, prices remain higher than for standard "unleaded" petrol.

The case is based on an article in the Irish Times, April 30th 1997, by Frank Kilfeather.

Petrol prices are higher now than at any time since government price restrictions on petrol were lifted in October 1991, according to the Automobile Association (AA), which urges motorists to "fight back" and shop around for value. The national average price for regular unleaded - the most commonly used fuel - is now 60.67p per litre, up three pence from the same time last year.

According to Mr. Conor Faughnan, the AA's public affairs manager, this represents "a real cost hike for motorists and businesses alike." The increase in petrol prices occurred gradually over the last year and was not helped by duty increases in January's Budget.

Leaded petrol shows a similar increase and now costs 66.07p per litre on average. Diesel is up 2.5 pence to 58.99p. Super unleaded petrol has lost its privileged tax status and is now the most expensive fuel on the market at 67.84p per litre, although it is being used much less frequently by Irish motorists.

The AA yesterday called on motorists to "fight back on the forecourts" by becoming much more price-sensitive and "vote with their feet". Because of the variation in petrol prices from garage to garage, an astute motorist could find excellent value.

Unfortunately, too many motorists did not shop around. There were garages selling regular unleaded at as much as 67p a litre, but at the other end of the price range the price could drop below 56p. The difference of 11p per litre represented a saving of £5.50 every time the tank was filled. The AA advises motorists to keep the national average price in mind (60.67 for regular unleaded), and never pay more. This is possible by adopting the following strategies:

· Buy fuel in numbers of litres rather than numbers of pounds.
· Shop around - if the price goes up at your regular service station then go elsewhere.
· Window-shop: keep an eye on prices displayed on forecourts; it becomes second nature to spot the best deal.

Also remember that when promotions are offered, the forecourt price shown must by law be net of all discounts.

Mr. Faughnan explained that three key factors underscored the rise in price. "Firstly, the retailers could be more competitive on price, secondly the motorist needs to be a lot more price-conscious, and thirdly successive Irish governments have regarded petrol as the `old reliable' at budget time."