oil prices are increasing recently due to war and some other reasons. Also i live in a country with exchange rate of 17 againist US Dollars and its getting worse day by day. i drive an old car , usually 10-15km per day approximately. after increasing oil prices , my annual oil consumption cost is almost 1/3 of my car price.

My question is , can increasing cost of oil consumption cause decreasing price for automobiles? we can generalize that question as : can increasing cost-price of a part of a stuff, would decrease the price of that stuff? is there any concept for that situation in economics?


2 Answers 2


Yes it can. It is well established that if two goods are complements (e.g. car & gas), then increase in price of one complement might lead to shift in demand for the other complement, ceteris paribus.

So if a gas price increases, you would expect demand for cars to shift to the left and consequently, ceteris paribus, see price of a car drop.

However, in real life of course ceteris paribus does not hold because multiple things are changing at the same time. For example, in the US there is not just supply shock that increased the real price of oil, there is also general inflation resulting from overstimulation of aggregate demand. In that case despite the above described effect price of cars could increase.



Maybe Electric car prices may go up with an increased profit margin. As people would prefer electric cars over gas.

Gas Car has a lot of costs involved, so the cost will be decided at the design itself. Maybe production may go down with decreased demand but automotive owners will not decrease by huge margins


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