Market for High Fuel Efficient Cars | Economic Assignment

Added on - 28 May 2020

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Running Head:ECONOMIC ASSIGNMENTEconomic AssignmentName of the StudentName of the UniversityAuthor note
ECONOMIC ASSIGNMENT1Table of ContentsAnswer 1..........................................................................................................................................2Answer a......................................................................................................................................2Answer b......................................................................................................................................3Answer 2..........................................................................................................................................4Answer a......................................................................................................................................4Answer b......................................................................................................................................5Answer c......................................................................................................................................6Answer 3..........................................................................................................................................8Answer 4........................................................................................................................................10Answer a....................................................................................................................................10Answer b....................................................................................................................................11Answer 5........................................................................................................................................12References......................................................................................................................................15
ECONOMIC ASSIGNMENT2Answer 1Answer aAn increase in petrol prices arising from global supply shortage of petrol has a directimpact on petrol demand.When price increases, then quantity demand for petrol reduces(Frank2014).As a result, they chose to buy cars that are fuel-efficient that requires less amount ofpetrol.The effect on the market for high fuel-efficient cars is shown below.Figure 1:Market for high fuel-efficient cars(Source:as created by Author)SS and D0D0describes the initial supply and demand situation in the fuel-efficient carmarket.E is point of equilibrium yielding an equilibrium price of P*and Q*number of cars.When petrol price increase then more fuel-efficient cars will be demanded.The demandexpansion is shown by the outward shift of the demand curveto D1D1.At the new demand, there
ECONOMIC ASSIGNMENT3will be a shortage of fuel-efficient cars.The new equilibrium is at the intersection point of newdemand curve D1D1and old supply curve SS.E1is the new equilibrium point where price hasincreased to P1and number of cars increased to Q1.Answer bThe effect of petrol price increase in the market for petro-substitutes products such asliquefied petroleum gas is same as that in the high fuel-efficient car market.Figure 2:Market for cars using liquefied petroleum gas(Source:as created by Author)As people, substitute their old cars with new cars using liquefied gas, the demand forsuch cars increases(Fine 2016).The demand curve will shift rightward from D1D1to D2D2.Corresponding to new demand, there will be supply shortage in the car market using petroleumsubstitute product.With an increase in demand, new equilibrium is at E1,obtained from the
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