Business Economics

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student
Name of the University
Course ID

1BUSINESS ECONOMICS
Table of Contents
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2BUSINESS ECONOMICS
Question 1
Question a
Figure 1: Effect of rise in oil price on automobile demand
A sharp rise in price of oil causes a fall in demand for automobile as automobile is a
complementary good of oil (Cowell, 2018) The decline in demand is shown by the leftward
shift of the automobile demand as shown in the above diagram
ii)
Figure 2: Effect of rise in oil price on home insulation demand

3BUSINESS ECONOMICS
When oil price rises, then people experience an increase in cost of energy. In such a
situation people attempts to take measures that reduce energy cost. Home insulation makes
efficient use of energy and reduces cost of heating and cooling appliances. This therefore will
lead to an increase in demand for home insulation. Accordingly, the demand curve shifts
outward.
iii)
Figure 3: Effect of rise in oil price on coal demand
Coal is used as a substitute of oil. The increase on oil price thus encourages people to
increase demand for coal (Baumol & Blinder, 2015). The demand curve for coal therefore
shifts the demand curve to the right.
iv)