Economics; question and answer Essay

Introduction suspicion 1War unrest in Middle East has negatively impacted on the footing and quantity of oil in the trade. The prediction of war from Syria and Iraq to spread to Middle East countries get under ones skin fear of practical shortages of emerge as nation may possibly do without oil. As a result people go out buy more to interpose in preparation for future shortages. As the petition gains, bell of oil goes up as people anticipate war unrest in the near future. When eventually the war sets in oil production is break but people do non demand more since they had fair to middling to cushion the scarcity (Kemp, 2013). In the graph illustration be mortified, assuming the market was signly at the equilibrium. Since scarcity is expected in future people will by more (high demand) to spare for future. As the demand attach from 150 units to 350 units, the set also increases accordingly from $0.25 to $ 0.35.Graphical illustration headway 2Car and petro are compl imentary right(a) that are consumed together. task income on one of the complimentary products greatly in grippeences the toll of the other well(p). The increase in price of one good causes a corresponding moderate in the price of the other good and vice versa. For slip, taxing accelerator increase its price, leading to high demand for high send away postulatent cars. Increase in demand for high fuel efficient cars results to increase price and vice versa. On the other hand increase in price for petrol leads to decrease in demand for low fuel efficient cars consequently leading to their low price (Dwivedi, 2012). Many thus will buy high fuel efficient cars.Graphical illustration. interrogation 3The fact that suppliers can non sell live chicken directly to consumers twin with the fear of down death due to anticipated chicken flu results to high supply in the market. When supply increases beyond demand the price falls shoot. In addition since the health official are the lone(prenominal) buyers a monopolistic competition comes into play since the price for chicken is not visualize by the market forces of demand and supply (Taylor, & Weerapana, 2012). The equilibrium the will shift to the right.Graphical illustrationQuestion 4Price picnic of demand is the measure of responsive of the quantity demanded of a product to price variegate 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%= -0.900As economists we are not interested with the negative sign of our price ginger snap 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 flirt withs that the demand for the product does not respond highly ton pr ice 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)Externality is an effect or a cost of the consumer bearing that may not be borne by the consumer but by the society. This mean s that the effects are caused by the consumer but the society bears the consequences. tobacco plant smoking is among the activities that cause externalities. For instance narcotic in tobacco is believed to cause lung cancer to smokers. However the external cost of providing medical care to smokers is borne by non-smokers, by smokers and the g everyplacenment. Additionally environmental 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 create room for tobacco growing. Agrochemical used in tobacco produ ction also adds to environmental pollution and degradation. Cigarette wastes are common in all cities, sidewalks and around homes. Although majority of these wastes are biodegradable, the filter and plastic wrappers and expect in the environment for long and the consequences of such pollution are mat by the larger society.Question 5(b)The Australian political sympathies in its attack 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.Question 6When entry barriers are eliminated in the market huge number 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 si nce no firm has control over the market. Excessive supply that is created results to low prices of goods and services offered. In response the price the price goes down due to competition from other firm. As a result, the profit that firms were reservation initially decreases due.Graphical illustrationQuestion 7Oligopolistic market structures is a type of market where by small number of larger firms control the market jointly. The firms trade in almost similar goods.Oligopolistic firms do not engage in price competetion (Vives, 2001). Basing our argument on the game surmisal where the actions one firm depend on those of other firms, it is evident that when for instance one firm trims its price compared to other firms, customers will be attracted by the lower prices resulting to other firms making economical loss 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 marke t will suck up loss and eventually respond by making their prices much lower compared to other firms. This process continues until the firms sell at economically a low price that is illustrated by kinked curves (Vives, 2001).There to hang on competitive and grade profit do not engage in price competition.Alternatives to price completionOligopolistic firms compete by using alternative modes such as ad, product specialization 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 differentiate their products in hurt of quality and always struggle to come up with new products visualise 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 approach 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 active donation of market. The common market barriers include the patent rights, important government franchises and the existing economies of scale. These are the barriers that ensure the market is not flooded by many firms, which in the end 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. Mason, OH South- horse opera Cengage LearningVives, X. (2001). Oligopoly pricing Old ideas and new tools. Cambridge, Mass. u.a. MIT Press