Wednesday 30 September 2009

EF Workshop 2 Demand and Supply




I know it's not and ideal graph, but at least i tried)

So this is our question:

The market for petrol

(a) A rise in the cost of refining petrol _H_

(b) A fall in bus and train fares _B_

(c) A fall in the price of crude oil and an increase in the price of cars _E_

(d) A rise in tax on petrol and a reduction in tax on cars _A_

Explanations
(a) Rise in the cost of refining petrol causes the supply curve to shift left, it means less supply and the prices increase. So the demand will contract( Remember the supply decreases demand contracts)
(b) A fall in bus and train fares, causes the demand to increase, which means various amount of people will travel by bus/train rather than cars... These effects will shift the demand curve to right causing the supply curve to extend.(demand increases supply extends)
(c) A fall in the price of crude oil will shift the supply curve to right, because cheaper the crude oil more of it will be supplied. An increase in the price of cars, shifts the demand curve to left, higher the prices demand decreases(if it's elastic)
(d) A rise in tax for petrol causes the supply curve for petrol to shift left, because, tax on petrol will raise the cost of production... Reduction in tax on cars causes people to buy more cars, which shifts the demand curve to right.


If one of my answers are wrong, comment please)

6 comments:

  1. (b) if fewer people use cars why does demand for petrol increase?

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  2. because petrol is inelastic,(which means more people will still buy it, also buses need petrol.

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  3. Inelastic does NOT mean more will buy......

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  4. yeah, but if the prices go up, still most of the people will buy it. But, i think the main concept is that the buses need petrol... So the demand for petrol will be more by the bus companies right?

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  5. No

    a few more buses maybe but loads less cars

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