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Econ In-Class Questions Week 3

The document contains in-class questions focused on the market dynamics of oil supply and demand, including the elasticity of demand in different countries. It also includes a demand function for good A, requiring calculations for quantity, income elasticity, and cross-price elasticity. Additionally, it discusses price elasticities for various products, particularly in the context of developing countries and their implications for global food manufacturers.

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Demir Basaktar
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2 views

Econ In-Class Questions Week 3

The document contains in-class questions focused on the market dynamics of oil supply and demand, including the elasticity of demand in different countries. It also includes a demand function for good A, requiring calculations for quantity, income elasticity, and cross-price elasticity. Additionally, it discusses price elasticities for various products, particularly in the context of developing countries and their implications for global food manufacturers.

Uploaded by

Demir Basaktar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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EC131 – Week 3

In-Class Questions 1 – The Market


Q1: The diagram below shows the hockey stick supply curve for global oil.

Price

Supply

P1*

Quantity

(a) Using the data below on price elasticity of demand for oil, draw the demand curve
on to the above diagram and explain its shape.

Short run Long run


US -0.061 -0.453
Germany -0.024 -0.279
UK -0.068 -0.182
Japan -0.071 -0.357

(b) Outline the main factors you would expect to shift the global supply and demand
curves for oil. In each case, explain which way the curves will shift.

Q2: Assume that the demand for good A is given by the following:

QA = 60 – 8PA + 3Y – 2PB

Assume also that PA = 3, Y = 4 and PB = 2. Use the idea that in the demand function

QA = a – bPA + cY – dPB

a, b, c, d represent the responsiveness of demand to a change in the relevant variable (i.e.


dQ/dP). We can then multiply that by P/Q at any point to give PED and can do the same with
other types of elasticity. Given this work out values for:
(i) QA (Quantity of good A)
(ii) YεD (Income elasticity of demand)
(iii) CεDAB (Cross-price elasticity of demand): Are goods A and B complements or
substitute?

Q3: The figure below shows price elasticities for various products for the US and Vietnam
and indicates that the PED for food, drink and tobacco products is much larger in developing
countries. Why is this?

Use the data in the figure below to support your answer to the question above.

What are the implications of the data on price elasticity of demand and income elasticity of
demand for a global food manufacturer?

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