Fuel sales decline 15%

The AA is reporting fuel sales are down 15% in the UK, that's 1.7bn billion litres less compared with three years ago.

The AA blame rising fuel prices. The price of petrol was around £1.05 a litre three years ago and is now £1.37.

Can we infer the Price Elasticity of Demand from this data? Well actually no, ceteris paribus does not apply.

You could calculate the PED but it won't be very accurate. Incomes have changed markedly in the recession, moves to reduce carbon emissions have been ongoing and of course households have had time to adjust to higher prices since the 2008 peak.

Interestingly the same phenomenon has been reported all over the world. All over Europe, in India and North America fuel consumption is down.

The BBC report the drop here

At last proof McDonalds is an inferior good

McDonald's have reported a 11% rise in revenue. What could have caused this?

We know that when real incomes fall then the demand for normal goods shifts to the left and less is bought at all prices. For inferior goods of course more is bought.

Is this the explanation for McDonald's? Well real incomes have been strained and some people have moved away from more expensive food to more 'affordable treats'. So this may be the reason.

However there are other factors in play. McDonald's have invested in their restaurants and staff and have promoted new products. So ceteris paribus does not apply.

Another reason could be that demand for McDonald's meals is elastic. They have many substitutes and they are not an essential item. So a price cut will have led to a rise in revenue.

The BBC report the story here