Economics question and answer Essay

Economics challenge and answerIntroductionQuestion 1 War unrest in Middle east has negatively impacted on the determine and total of oil in the martplace. The expectation of war from Syria and Iraq to spread to Middle East countries feature vexation of possible shortages of emerge as heap may possibly do with bulge oil. As a result people exit buy more to store in preparation for future shortages. As the pray annexs, outlay of oil goes up as people betoken war unrest in the near future. When eventually the war sets in oil yieldion is disrupted but people do non rent more since they had enough to cushion the scarcity (Kemp, 2013). In the chart illustration be imprint, assuming the market was initially at the equilibrium. Since scarcity is anticipate in future people go away by more ( heights demand) to wasted for future. As the demand increase from 150 units to 350 units, the toll also increases then from $0.25 to $ 0.35. in writing(p) illustration341122014643 ampere-second0 encrypt SEQ Figure * Arabic 1 when people expect civil unrest the demand is higher(prenominal) but and the damages go up.Question 2 Car and petro ar complimentary good that be consumed together. Taxation on one of the complimentary products greatly influences the footing of the early(a) good. The increase in determine of one good causes a correspondent decrease in the price of the otherwise(a) good and vice versa. For precedent, levy gun increase its price, leading to high demand for high give nonice expeditious cars. Increase in demand for high fuel streamlined cars results to increased price and vice versa. On the other hand increase in price for petrol leads to decrease in demand for economic crisis fuel efficient cars thus leading to their low price (Dwivedi, 2012). legion(predicate) thus go forth buy high fuel efficient carsGraphical illustrationFigure SEQ Figure * ARABIC 2 price of petrol increases when tax is imposedFigure SEQ Figure * ARA BIC 3 this interpret shows increase in demand and price for high fuel efficient when the price for petrol increases due to tax revenueFigure SEQ Figure * ARABIC 4 the graph show decrease in demand for high fuel efficient cars when the price of petrol goes upQuestion 3 The fact that suppliers cannot sell live chicken directly to consumers coupled with the fear of mass death due to anticipated chicken flu results to high supply in the market. When supply increases beyond demand the price go down. In addition since the health official are the only buyers a monopolistic competition comes into play since the price for chicken is not maintain by the market forces of demand and supply (Taylor, & Weerapana, 2012). The equilibrium the will elusion to the right.Graphical illustrationlefttopFigure SEQ Figure * ARABIC 5 superfluous supplies of chicken in the market results to low demand and eventually fall in price. The farmer expects future unfavorable condition due to bang of chick en flue.Question 4Price elasticity of demand is the respect of responsive of the amount demanded of a product to price change with other factors held ( Dwivedi, 2012).Price Elasticity of Demand (PEoD) = percentage change in quantity demanded (%Q) percentage change in price (%P)%Q = 35 -50 / 50 100= -30%%P = 8 -6 / 6 100= 33.33%Therefore, PEoD = -30 %/ 33.33%= -0.900 As economists we are not interested with the negative sign of our price elasticity of demand and therefore we take the absolute value. Therefore, the price elasticity of demand when price increases from $6 to $ 8 is 0.9.Interpretation. For the above case the demand for the good is price inelastic. This way that the demand for the product does not respond highly ton price changes. As evident in the computation, an increase of price by 33.3 % of the price results to a corresponding decrease of quantity demanded by 30%. The demand thus is not very sensitive to price changes.Question 5(a) orthogonality is an eff ect or a cost of the consumer behavior that may not be borne by the consumer but by the society. This mean s that the set up are caused by the consumer but the society bears the consequences. Tobacco smoking is among the activities that cause externalities. For instance narcotic in tobacco is believed to cause lung cancer to smokers. stock-still the external cost of providing medical care to smokers is borne by non-smokers, by smokers and the g everywherenment. to boot environsal pollution due to smoking is borne by the family members of the smokers friends and even non-smokers strangers. Moreover, smoking has environmental externalities that involve deforestation to clear populate for tobacco growing. Agrochemical used in tobacco production also adds to environmental pollution and degradation. Cigarette wastes are common in all cities, sidewalks and or so homes. Although majority of these wastes are biodegradable, the filter and plastic wrappers and remain in the environment for long and the consequences of such pollution are felt by the big society.5(b) The Australian government in its attempt to control and minimize the external costs resulting from tobacco imposes high tax on tobacco. High taxation on tobacco increases the cost and as a result the demand for tobacco decreases. The tax imposed is transferred by producers to the consumers (smokers). When this happens, the demand curve will shift from right to left as indicated in the graph.Figure SEQ Figure * ARABIC 6 (Tax increase the price for tobacco leading to low demand and eventually low consumption)Question 6 When entry barriers are eliminated in the market huge subroutine of firms enters the industry resulting to excessive supply of commodities. In a market where entry barriers are limited the price of commodities is determined by the market forces since no firm has control over the market. Excessive supply that is created results to low prices of goods and services offered. In response t he price the price goes down due to competition from other firm. As a result, the profit that firms were sword initially decreases due.Graphical illustration1627833top00Question 7 Oligopolistic market structures is a type of market where by small number of larger firms control the market jointly. The firms trade in almost mistakable goods. Oligopolistic firms do not engage in price grappletion (Vives, 2001).Basing our argument on the game theory where the actions one firm depend on those of other firms, it is evident that when for instance one firm lowers its price compared to other firms, customers will be attracted by the lower prices resulting to other firms making economical passing in their operation. In response to this the other will lower their price slighted below the initial firm eventually attracting the customers. The other firms in the market will make loss and eventually respond by making their prices much lower compared to other firms. This process continues unt il the firms sell at economically a low price that is illustrated by kinked curves (Vives, 2001).There to remain competitive and make profit do not engage in price competition.Alternatives to price completion Oligopolistic firms compete by using alternative modes such as advertisement, product differentiation and barrier to entry in the market. Oligopolistic firms undertake a vigorous advertisement of their products both in national and international levels. advertisement is made to make potential customers aware of the existence of the product in the market and the good qualities associated with such good and services (Taylor & Weerapana, 2012). Advertisement is carried out through mass media and product promotion. In addition oligopolistic firms constantly tag their products in terms of quality and always struggle to come up with new-made products design that outshine those of competitors. In the recent era product differentiation has been enhanced by ever growing technology and innovation. Since oligopolistic firms compete in almost similar goods and services coming up with new products with good qualities gives a firm advantage over its market rivals. For instance phones manufacturing firms have constantly developed phone with new applications to remain competitive. Furthermore, the firms create market entry barriers to new firms, a strategy that ensures that the actual divide of market. The common market barriers include the patent rights, important government franchises and the existing economies of scale. These barriers ensure that the market is not flooded by many firms that in the long run may reduce the existing firms share of the market control.ReferencesDwivedi, D. N. (2012). Microeconomics. New Delhi, India Pearson Education/Dorling Kindersley.Kemp, G. (2013). War with Iran Political, military, and economic consequences. Lanham, Maryland Rowman & Littlefield PublishersTaylor, J. B., & Weerapana, A. (2012). Principles of microeconomics. Ma son, OH South-Western Cengage LearningVives, X. (2001). Oligopoly set Old ideas and new tools. Cambridge, Mass. u.a. MIT PressSource document