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The axle ratio determines how many revolutions the engine must turn in order to turn the wheel one revolution. Lets say you have an axle ratio of 4:11 to 1 on a 4 speed transmission. That means the engine will turn 4:11 time every time the wheel rotates 1 time in 4th gear. Now you change the axle ratio to 3:25 to 1. Now the engine turns 3:25 revolutions to rotate the wheel 1 revolution. It is easy to see that the vehicle with the 3:25 ratio will get better fuel mileage. However it will have less pulling power and be slower at takeoff. Axle ratio is calculated to be the best compromise of power and mileage. The weight of the vehicle, engine power, and what the vehicle is used for is the determining factor as to the final drive ratio. This is a simplistic explantation and it is far more complicated than this when determining what ratio to use in what vehicle.
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