QUESTION 1

Ceteris paribus, assume a global shortage of petrol has resulted in a doubling of petrol prices. Use graphical demand and supply analysis to support your explanation of the impact on equilibrium price and quantity in the market for:

a) Low fuel efficient petrol cars.
b) Cars that use liquid gas (a substitute for petrol), where the price has not increased.

NOTE: In your answers explain the market equilibrium adjustment process

QUESTION 2

Use graphical demand and supply analysis to support your explanation of the effect the following events will have on the market for beef. (Assume ceteris paribus for each of the event).

a) A sharp fall in average wages, assuming beef is a normal good.
b) Farmers have access to high quality cattle feed (food for the cows), which has reduced the time it takes to get cattle ready for the market.
c) Governments in beef producing countries have not only ordered the mass slaughter of cows due to the spread of mad cow disease but they have also warned consumers about the dangers of consuming beef. (HINT: Explain all possible impact on price and quantity)

QUESTION 3

Ceteris paribus, assume the increase in new commercial apartments has at the same time been accompanied by a decrease in the demand for such apartments. Use graphical demand and supply analysis to support your explanation of the impact on equilibrium price and quantity of the market for new commercial apartments.

(HIN: Explain all possible impact on price and quantity)

QUESTION 4

a. If the price of a good increase from $3.25 to $4.00, leading to a fall in quantity demanded from 25 to 18 units, what is the price elasticity of demand for the good at this price range?

b. Explain why it is important for the business owner to understand the meaning of the elasticity value.

QUESTION 5

The CEO of HAPPY enterprise has decided to change its business strategy from a sales maximising strategy to a profit maximising strategy. Use graphs to support your explanation of the two methods a company can use to decide on how much it has to produce to ensure it achieves a profit maximising output level.

Jesse Singh (March 2017).