Introductory Economics Research Paper 2022

Running head: INTRODUCTORY ECONOMICS
Introductory Economics
Name of the Student
Name of the University
Course ID

INTRODUCTORY ECONOMICS1
Table of Contents
Introduction................................................................................................................................2
Analysis......................................................................................................................................2
Brief explanation of theory related to demand, supply and elasticity....................................2
Application of theory to the article........................................................................................4
Technical details.....................................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................9

INTRODUCTORY ECONOMICS2
Introduction
Microeconomics refers to the branch of economics that studies behavior of individual,
firm or household in the decision making related to resource allocation. The relevant concepts
of microeconomics are applicable to the market for goods and services and address issues
related to individual and single market (Parkin and Bade 2013). The paper analyzes an article
that deals with specific microeconomics concepts of demand, supply and price elasticity of
demand. Demand, supply and associated elasticities are important in explaining workings of
free market. The article deals with a recent hike in oil prices. Globally, fluctuation in oil
prices is one of the most debated topics due to its link with global commodity market. The
weak demand condition has been offset by supply side uncertainties related to oil production
in OPEC and Middle East. The risk of weak global demand and associated elasticity of
gasoline will adversely affect the crude oil market. The movement of oil prices are discussed
using relevant microeconomics concepts.
Analysis
Brief explanation of theory related to demand, supply and elasticity
The concepts of microeconomics that are relevant for the articles are demand, supply
and price elasticity of demand. Each of these concepts has its own importance in the field of
microeconomics. The basic concepts of demand, supply and elasticity are briefly discussed
below.
Demand:
In economic terms, demand simply refers to the quantity of a particular product or
service that people are willing to buy given the ability to purchase given price of the product
in a given period of time. The theory of demand is one of the primary theories of
microeconomics (Baumol and Blinder 2015). It intends to answer some basic question related

INTRODUCTORY ECONOMICS3
to desire of people to buy something and associated change in demand because of the change
in income levels and level of satisfaction. The relation between quantities demanded and own
price of a good is explained in the law of demand. The law portraits an inverse relation
between own price and demand. That means, given all the factors affecting demand, demand
of a good moves in the opposite direction of price. Apart from own price, other factors
affecting demand include income, tastes and preferences, price of related goods and others.
Supply:
Associated with demand, another important force determining market equilibrium is
supply. Supply refers to the quantity of a particular product or service that producers are
willing and at the same time able to supply at a specific price. The law of supply captures the
relation between price of a good and its supply. Given all other factors determining supply,
there exists a direct relation between price and quantity supplied of a good that is quantity
supplied increases with increase in price and vice versa (Cowen and Tabarrok 2015). Factors
other than price affecting supply of a product are production cost, natural condition, transport
condition, technology, input prices and availability of inputs, price of substitutes and
complements, policies of government and others.
Price elasticity of demand:
Price elasticity of demand relates relative responsiveness of quantity demanded with
respect to certain percentage change in own price of the product. Elasticity of demand with
respect to own price plays an important role in determining price because of its impact on
revenue of a firm. When change in demand is proportionately greater than the change in price
then demand is considered as relatively elastic. Under such condition a decline in price
increases revenue by increasing demand by a large amount (Nicholson and Snyder 2014). If
change in demand is proportionately less than price change then demand is considered as