Summary of article

This article is aim to explain the sales of electric cars will not effect by the oil
price. Compare to traditional diesel cars, the electric vehicles are much more
expensive. However, it indicated that the electric cars customers who are not care
about money and they have commitment to protect the environment, so that they
would more likely to choose the electric cars instead of diesel ones. Furthermore,
there are other benefits of electric cars such as low maintenance cost, the ability to
recharge at home and government support. It may encourage the electric cars to
develop in the future. Currently, from long-term point of view, electric cars are facing
many problems, which have not solved yet, and they are negative influence to limit
the development of electric cars. The challenges faced by electric cars are lack of
infrastructure and establish a secondhand market to replace the electricity battery,
which could effect on the customer decision making to purchase an electric car.
Therefore, it can conclude that oil price decrease has no significant effect on the sales
of electric cars. For electric cars, it required for high technology so that it cause high
initial investment, which is most concerned by customers.

Microeconomic concepts
Firstly, if we assume electric car is a substitute product of normal gasoline ones,
the oil price will definitely to effect on the sales of electric cars. We are able to apply
market equilibrium theory to analysis (Sharpe, 1964). When the oil price decrease and
without consider other factors , the demand of gasoline cars will increase and it
because the cost of car , which encourage more people to purchase a car and the
people will have more purchase power specially for price sensitive customers. More
and more customers will prefer to have a gasoline car. For the car company manager,

he would notice the decrease of oil price. Therefore, according to demand and supply
curve, he may slightly modify for the car-selling price in order to balance the market
to avoid lack of supply or supply surplus. In this situation, if more demand on the
gasoline cars, it will negative effect on the sales of electric cars. However, in the
reality, electric car is not a substitute of normal gasoline cars. Due to technology
development and eco-environment, it encouraged electric cars to develop, which will
beneficial to the environment but the cost to produce electric cars are very high. It
directly decides the selling price of electric cars is high, which need a big amount of
initial investment to the customers. Compare to the initial cost of gasoline car and
electric car, the cost of electric car is much higher than gasoline cars, which is not
widely affordable by public. Thus, if customer who have limited purchasing power
,when the oil price increase to effect the cost increase on the gasoline cars, he will not
consider to buy electric cars to instead of it.

Secondly, according elasticity theory, there are several determinants to the price
elasticity of demand. It stated that if there are more substitutes of the current product,
it will have more elastic demand. When the oil price decrease, if there are many
substitutes for oil, its price elasticity of demand will be high. That indicated that
change of demand is greater than change of price and the result is more than 1.
However, according to the above opinion in section1, there is no substitute of gasoline
cars, its price elasticity of demand is low , which means change of demand is lower
than the change of price and result is below 1(Havranek, Irsova & Janda,2012). In the
short-term analysis, it is hard to investigate the influence of the oil price to sales of
electric cars. However, for long-term analysis, along with technology and social
development, the customer purchasing power will be increase, their purchase

perception and behavior will change by education level, those factors will influence in
the sales of electric cars rather than oil price factor. Furthermore, car is not a
necessary product for the human daily life. Without car, the people can choose public
transportation or other ways such as by walk or bicycle. Car can be considered as
luxury product to the human life and more and more people are aim to buy a car to
show off their lifestyle. Thus, demand of car will have less influence by the price
change and it can conclude that for car this product, price elasticity of demand is very
low. No matter of gasoline cars or electric cars, demand is hard to influence by any of
price factor in generally. As the articles mentioned that, for the electric cars
consumers, they are not care about the price so that they are the less price sensitive
people. When they decide to buy an electric car instead of gasoline one, they consider
more on environment protection. It supported by Lave, Hendrickson and McMichael
in 1995. Therefore, for electric car itself, it can be identified as price inelastic product
and it is possible to skew to perfectly inelastic, which means no matter price increase
or decrease, there is nothing changes on the quantitative of demand.

For the future development, we know the significance to protect the environment.
That is the reason to explain the government support the development of electric cars.
As the articles mentioned, the government provide subsidies for the electric cars
owners. Free parking for electric cars in some urban areas will attract some customers
to consider it as one advantage. Furthermore, in china, the government has heavily
restricted petrol-powered cars, which also encourage the consumer to consider electric
cars as one option when they are willing to purchase a car. Lieven, Muhlmeier,
Henkel and Waller (2011) conducted a study to indicate the customers who are will to
buy electric cars in Germany. According to the demand and supply curve, it is

possible to suggest applying tax policy in cars sector. The government can design the
different tax policy according to petrol-powered cars or electric cars. For petrolpowered cars, the luxury brands are very expensive especially for certain model,
which is the selling point to promote the business. For this group of less price
sensitive customers, it will require for more tax if they choose to buy gasoline cars. It
is a strategy to turn some people to consider purchasing electric cars. Tax can be used
as a tool to adjust the demand and supply of petrol-powered cars form customers
sides. Meanwhile, it is able to apply in the company side. For the gasoline cars
producers, they are required for more tax in order to take responsibility for the air
pollution, which definitely to influence in the selling price of gasoline cars. It will
effective to encourage the customer to consider purchasing electric cars. However, the
problems mentioned in the articles as battery and basic infrastructure should be paid
attention by the government and related industry, which will improve the development
and publicity of electric cars in the future. According to the real market situation, tax
policy should be modified by various factors concerns.

Diagram description
According to the illustration, the oil price decrease will effect on the demand of
gasoline cars as Q1 to Q2. When the supply curve maintain, it will cause the gasoline
car price increase as illustration showed that P1 increase to P2.That indicated that cars
company will increase their selling price to secure Q2 demand to the market.
Otherwise, if the company maintains the same selling price P1, it will result the
company to produce more care to achieve Q3 to fulfill the market. However, Car can
identify as price inelasticity of demand product so that it indicated that greater change
in price than demand. Therefore, the oil price decrease will lightly influence on the

demand of the gasoline cars sales but not that heavy. It indicated in this illustration,
the price increase from P1 to P2, the rang of price increase is larger than the quantity
increase from Q1 to Q2 , Q2 to Q3. If the electric cars as substitutes of petrol-powered
cars, the sales of electric cars will be effect and it will result the sales of electric cars
decrease. However, the sales of electric cars has no effect by the oil price decrease
because electric cars is a normal and luxury product, which is not depend on price
factor and influence by other factors such as government policy, development of
infrastructure and electric battery recycle issues. Therefore, in the future electric cars
development, government involvement and technology improvement will influence
the most in publicity of electric cars.

Figure: Demand and supply of Gasoline cars

Reference
Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of
risk*. The journal of finance, 19(3), 425-442.

Havranek, T., Irsova, Z., & Janda, K. (2012). Demand for gasoline is more price-inelastic than
commonly thought. Energy Economics, 34(1), 201-207.

Lave, L. B., Hendrickson, C. T., & McMichael, F. C. (1995). Environmental implications of

electric cars. Science(Washington), 268(5213), 993-995.

Lieven, T., Mhlmeier, S., Henkel, S., & Waller, J. F. (2011). Who will buy electric cars? An
empirical

study

in

Germany. Transportation

Environment, 16(3), 236-243.

Research

Part

D:

Transport

and