I.1. The table below shows the amount of demand and supply for barrels of petrol. What is the equilibrium price and quantity in the market? How can you tell?
Now, imagine that because of a shift in the perceptions of purchase managers (pessimism), the demand curve shifts so that there will be $15 million less demanded at every price.
Calculate the new equilibrium price and quantity and explain why the direction of the price shift makes intuitive sense.
I.2. Explain the concept of cost opportunity. How does economic profit differ from accounting profit? Give a numerical example. Word count: 350
I.3. Critically evaluate and explain (Word count: 350):
a. A firm in a perfectly competitive market should always shut when its marginal revenue is below its average cost (equivalent to average total cost).
b. The intersection of marginal revenue and marginal cost determines the quantity at which a business in a perfectly competitive market is profitable.
II.1. Explain the formation of equilibrium prices in the crude oil market. Is the price fixed in time? Or what are the factors influencing its levels?
Using a business sector of activity (e.g., technology, transportation, retail, pharmaceutical, ...) of your choice as an example, further explain the consequences of these changes on price, consumption and economic profitability for consumers and companies.
Tips: You must consider the impact on supply and demand in a first step, then how this impacts the economy. Reference is required in this question with a goal of 10 unique academic/professional references. Structure this response as an essay with an introduction and conclusion. A graph or two can be included.( Word count: 600 words)
II.2. What is the impact of the price ceiling on the price of heating gas in Europe? Explain in your own words the characteristics of supply (quantity and price) in this situation. To formulate your answer, consider the global market for natural gas and what would be the equilibrium if there were no political subsidies to maintain the price ceiling in Europe. (Word count: 350 words)
II.3. Explain the characteristics of perfect competition in terms of demand, price, quantity and profits at equilibrium. Why does perfect competition achieve productive and allocative efficiency? What are the limitations that prevent this market structure from developing in real life? (Word count: 350 words)
