Assignment Regulation:

• All students are encouraged to use their own word.
• Student must apply “Times New Roman Style” with 1.5 space within their reports.
• A mark of zero will be given for any submission that includes copying from other resource without referencing it.
• If the assignment shows more than 25% plagiarism, the students would be graded zero.

ASSIGNMENT 1

1. Pick a consumer good or service that you normally buy and make a table of the quantity you would buy over a range of prices that includes the actual price today and hypothetical prices both lower and higher. Express in your own words what information this table contains. Now add another column of quantities that estimate your purchases if your income increased by 50%. (2 Maks)

The table shows that, with a slight increase or decrease in the petrol price, the quantity I purchase per week does not change that much. My demand appears to be relatively inelastic. However, with a colossal increase in petrol prices, the quantity I buy per week reduces drastically. With an increase in income, I will also try to increase my consumption of petrol, and this is because my movement around will increase. With an increase in income, I may increase my leisure activities including number of traveling during weekends.

1. Now estimate the number of consumers in the KSA for the good you choose and make a table of your estimates of the total quantities demanded over the same range of prices. Graph the result. Add to your table and graph the demand schedule under the assumption that all consumers enjoy a 50% increase in income. (1 Mark)

1. What would be a substitute for the good you chose? What will happen to the demand schedule if the price of that substitute were to fall by 50%? (1 Mark)

The substitute for petrol is electric car. If the price of electric car were to fall by 50% the demand for the substitute will increase because it is more cost effective and does not pollute the environment.

1. Use your imagination to draw a short-run supply curve for your good and a long run supply curve. Why do they differ in shape? Draw again your short-run supply curve under the assumption that the largest factory in the industry was destroyed by fire last night. What effect will that event have on the price, and how is this reflected in your graph of supply and demand? (2 Marks)

Supply In the Short Run

Supply in the Long Run

Supply In the Short Run (When a large industry in The area was destroyed by Fire last night)

The shape of the supply curve in the short run and that, in the long run, differ because the increase in petrol prices in the short run might not affect the supply. This is because the number of people purchasing vehicles, and other machines using petrol might not shoot in an overnight. The supply of petrol is not affected that much with a slight increase in prices. However, in the long run, the price will continue to rise, while the supply increases until it becomes constant even with increase in petrol prices. This might be because alternatives cars that use either electricity or other forms of fuel have been introduced into the market and a large number of people are now embracing that new technology (Pettinger, 2019). Besides, increased awareness of using clean energy might also affect the supply as well as the increasing scarcity of the commodity since its nonrenewable.

The burning of the large company overnight within the region might not affect the supply that much, because the price of petrol is usually inelastic in the short run (Conrad, 2019).

1. Suppose that the supply of this good was permanently restricted for some reason. Compare the short run response in the price to the response over, say two years. What aspect of consumer behavior accounts for the difference? (1 Mark)

If the supply of the commodity is restricted permanently, then in the short run, the price will slightly increase.  However, in the long run, let’s say after two years, the price will drastically go up due to increase in demand for the commodity and shortage in supply. With an increased number of people purchasing cars and with the ever-growing demand for petrol, restriction in its supply, in the long run, would lead to very higher prices.

References

Conrad, T. (2019). The End Of Elastic Oil. Retrieved from https://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-oil/#180a75e736d6

Global Petrol Prices.com. (2019). USA gasoline prices, 11-Feb-2019 | GlobalPetrolPrices.com. Retrieved from https://www.globalpetrolprices.com/USA/gasoline_prices/

Pettinger, T. (2019). Price Elasticity of Demand – Short and Long Run. Retrieved from https://www.economicshelp.org/blog/435/concepts/price-elasticity-of-demand-short-and-long-run/

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