ECON6001 Economic Principles - Case Study

Added on - 03 May 2020

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Running Head: Demand and Supply AnalysisDemand and Supply of Nordic Bridge ServicesStudent NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
Demand and Supply Analysis2Demand and Supply of Nordic Bridge ServicesPart AThis case study clearly notes that there are many passengers who are demanding to usethe Nordic bridge. The high traffic recorded on a one way from Sweden to Denmark indicatesthat there is high competition for the bridge services. This makes the demand side by consideredto be perfect competitive. On the other side, the supply side is not perfectly competitive; this isbecause there are fewer means of transportation from Sweden to Denmark. The case study notesthat the suppliers are directly cutting the price meaning that they are price makers; the price isnot resulting from the interaction between demand and supply forces. A person moving fromeither Sweden to Denmark or vice versa have four main means of transport; could use the bridge,the train, ferry or the air means. The train and ferry services are the most commonly used meansof transport because they are cheaper; the other two means are way expensive. One disadvantageof the cheaper means is that they are way slower compared to the expensive means. The supplyside of this market therefore operates under an oligopoly market structure where the suppliers arefew but the consumers are many.The main reason why the demand curve for Nordic Bridge services is downward slopingis because demand is influenced by the price level; the two has a negative relationship (Anand,2017). For normal goods or services, the demand curve is downward sloping because consumers’willingness and ability to pay is lower when the prices are high. On the other hand, theconsumers’ willingness and ability to pay is higher when prices are lower. This therefore meansthat when price rises, demand falls, and when price falls, demand rises. This negativerelationship between price and demand of goods and services is represented in the downwardsloping demand curve. This case study explains that the high price on the bridge is responsiblefor the reduced number of vehicles using the bridge. It also tell that a reduction in this price willresult in an increased demand for the bridge services; the number of vehicles will rise.When the bridge was constructed, the demand was very high and the suppliers assumedthat the demand would remain high at the set price level. However this is a wrong assumptionbecause if the price set was very high, demand in the short run could have been higher becauseof the convenience expected to be derived from using the bridge. However in the long run,households and business investors will adjust so as to minimize their usage of the bridge so as toavoid the higher costs(Bhaskaran, 2017). The suppliers thinks that definitely the demand for the
Demand and Supply Analysis3bridge services will rise when price is cut, however, this may not be the case. Sometimes a pricecut does not result in a significant rise in demand depending on the nature of the good or service.The suppliers are also making a wrong assumption by thinking that they could price discriminatea service is the same market. A cut in one way price from Singapore to Denmark will create highpressure for the price from Denmark to Sweden to be cut too. Thus, it won’t help in loweringtraffic as expected.Fig: Demand Curve for Nordic Bridge servicesPriceP1P2Downward sloping demand curveQ1Q2Number of VehiclesWhen P decreases from P1 to P2, quantity increases from Q1 to Q2 and vice versa.
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