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BEO1105 Economic Principles Problem Solutions

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Victoria University | Melbourne Australia

   

Economic Principles (BEO1105 Economic Principles)

   

Added on  2020-05-28

BEO1105 Economic Principles Problem Solutions

   

Victoria University | Melbourne Australia

   

Economic Principles (BEO1105 Economic Principles)

   Added on 2020-05-28

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Running Head: ECONOMIC PRINCIPLESEconomic PrinciplesName of the StudentName of the UniversityAuthor note
BEO1105 Economic Principles Problem Solutions_1
1ECONOMIC PRINCIPLESTable of ContentsAnswer 1....................................................................................................................................2Answer a.................................................................................................................................2Answer b................................................................................................................................3Answer 2....................................................................................................................................4Answer a.................................................................................................................................4Answer b................................................................................................................................5Answer c.................................................................................................................................6Answer 3....................................................................................................................................8Answer 4..................................................................................................................................11Answer a...............................................................................................................................11Answer b..............................................................................................................................12Answer 5..................................................................................................................................12References................................................................................................................................16
BEO1105 Economic Principles Problem Solutions_2
2ECONOMIC PRINCIPLESAnswer 1Answer aFigure 1: Fuel efficient car market (Source: as created by Author)The law of demand suggests an inverse relation between price and quantity demandedof a commodity (Varian 2014). An increase in the price of petrol has a direct impact ofreducing petrol demand. People now want to reduce their petrol demand and prefers fuelefficient cars. As a result, demand for fuel efficient curve increases shifting the demand curveto the right. The sudden increase in demand given the supply creates a shortage of cars in themarket. With a general shift in the demand curve from DD to D1D1, price reaches to P1 fromequilibrium level of P* and number of cars increases to Q1. Answer b
BEO1105 Economic Principles Problem Solutions_3
3ECONOMIC PRINCIPLESFigure 2: Car market using liquefied petroleum gas (Source: as created by Author)When petrol price raises then people will either switch to fuel efficient cars or try tofind some alternative of petrol. Consequently, demand for cars using petroleum substituteproducts increases (Azevedo and Leshno 2016). In figure 2, increases in demand for suchcars is indicated by the rightward shift of the demand curve. The new demand curve is B1B1.At the new demand curve there is an excess demand for cars using liquid gas. At the shifteddemand curve, the new equilibrium is obtained where B1B1 cut the supply curve FF.Theincreased demand expands this car market with a higher price and greater number of cars soldthan earlier.
BEO1105 Economic Principles Problem Solutions_4

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