|
|
This is only a preview of the paper
Click here to register and get the full text.
Existing members click here to login
|
|
|
Assignment 2 For this assignment the assumption is made that all other influences on demand remain unchanged. a. Gasoline. In the short run gasoline will be inelastic. The percentage change in quantity demanded will be smaller than the percentage change in price. For example, when prices decrease, demand will probably increase somewhat, because some people will buy extra for stock (jerry can), but not as much as the percentage change in price. In the long run, gasoline will probably be elastic. If price increases will continue in the long run, people will get interested in finding alternatives for gasoline. Most people use gasoline for transportation. In the long run demand for transportation by train, electric cars and boat will increase, which leads to a percentage decrease in quantity demanded that is larger than the percentage increase in price. The same will happen with price decreases in the long run. Gasoline will become relatively cheap and will be used for purposes for which prices were too high before. b. Shell Gasoline. Shell Gasoline will be elastic in the short run, as well as in the long run. People notice no direct difference in Shell gasoline or, for instance, Esso gasoline. When only the price of Shell gasoline increases with X percent and other gasoline prices stay the same, the percentage change in quantity demanded for Shell gasoline will be larger than X percent. People will easily change to another brand of gasoline, which makes it highly elastic product. In the long run Shell gasoline will also be highly elastic. Since people do not really seem to care which kind of gasoline goes in their car, they are very much driven by the price of gasoline. There is no clear need for a consumer to pay more for Shell gasoline compared to other brands of gasoline. The same goes of course for a price decrease of shell gasoline.
Approximate Word count = 1229
Approximate Pages = 4.9
(250 words per page double spaced)
|
|
|
|
|
|