Problem :

The following table is a hypothetical schedule of a US fuel market. You are required to use illustrations to answer the questions. The raw score of this exam is 20

1. Plot the market consumption and supply on the same graph.
2. Explain what will happen to fuel consumption when the price changes from $1.75
3. Suppose the US dollar depreciates as a result of a mortgage crisis and foreign war, how will the shocks affect the consumption of fuel? Why?
4. Assuming that the market espouses unit elasticity, what will happen, if producers reduce their supply in response to the shocks?
5. Suppose policy makers decide to regulate price in this fuel market, explain the potential consequences of price regulation
6. Illustrate and explain how an increase in demand for hybrid cars will affect this Market.

Bonus: Calculate the price elasticity of demand (arc elasticity) when price increases from $1.50 per gallon to $1.75 per gallon. What is the meaning of your elasticity coefficient? How will the price change affect the total revenue of suppliers? Will the coefficient be different for a price change above the equilibrium price? Why? What will be the probable reaction of society to price changes at higher levels (above equilibrium)? [Ed | = °/o change in Quantity demanded/ % change in Price; where Ed is the elasticity coefficient

Price: $11.93

Solution: The downloadable solution consists of 6 pages, 593 words and 6 charts.
Deliverable: Word Document