Surname 8. Name. Professor. Institution. Course. Date.

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Name
Professor
Institution
Course
Date
Question 1
a) An outbreak of hostilities in the Middle East can have adverse impacts on the
supply of Petrol in the Australian market. This can be explained using the forces of
demand and supply. The law of demand and supply defines the association between
demand and supply (Cook, 2017, p. 78). The theory describes how the availability of a

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given product influences its price. Precisely, a decrease in the supply of Petrol will lead
to an increased demand for the commodity. The law of demand says that at higher rates,
buyers will demand less of the economic good. In this case, the hostilities in the Middle
East will lead to increased demand in the quantity of Petrol in the Australian market
(Easley & Ledyard, 2018, p. 156).
On the other hand, the law of supply states that the increase in prices will make
sellers supply an increased amount of an economic good traded in the market. The
interaction between the demand and supply is at equilibrium if the quantity of a
commodity supplied is equal to the amount that is demanded. The demand for passenger
cars, in this case, will reduce since they use petrol which is not adequately supplied in the

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market.
(Varian, 2017, p. 58)
a) Substitute goods are two products that can be used for the same purpose by the same
client. The consumer perceives the substitute goods as similar or more comparable so that if he
has one more of a given good, then he desires less of the other commodity. If the price of one
commodity goes up or down, the demand for the substitute good will increase or decline
(Kneese, Ayres, & d'Arge, 2015, p. 88). The other product will, therefore, possess cross-price
elasticity. The latest electric car will act as a substitute good for petrol-driven vehicles. When the
demand for petrol increase and the price shoots, the consumers will opt for electric cars which
will have a relatively lower price and will not consume petrol (Stahel, 2016, p. 98). The
availability of electric cars will cause a fall in demand for petrol-driven cars, and hence this will
create a positive cross elasticity of demand for electricity-driven cars. Petrol driven cars and
electricity-driven cars are close substitutes and have direct competition (King, 2016, p. 122).