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I have a 1991 Toyota Corolla 1600GLX. It was tuned by a retired mechanic about 2000km ago. On a long trip I can travel over 500km on a 40 litre tank of fuel.
However around town this drops to less than 400km. Is this to be expected?
I don't drive it hard. I'm in Rotorua so not a lot of stop/start at traffic lights etc.
Any ideas?

The difference between the mileage you are getting on the open road to that which you're getting around town is probably about normal. However I would have thought that you would get slightly better economy under both conditions than the 8L/100km open road and 10L/100km around town.
Are you sure this is the actual mileage you are getting from 40 litres of fuel rather than just filling up when the gauge is reading low. Sometimes you can still have another 50+km left to travel when the gauge is reading empty.
Perhaps taking the odo reading and making note of exactly how many litres you are putting in over a few tanksful might give you a more exact figure?