BEO1105 Economic Principles

Assume good rainfall has resulted in a bumper harvest of wheat. Using demand and supply analysis and graphs, explain how this will impact on the equilibrium price and quantity of:

a) Wheat flour.

b) Millet, assuming it is a substitute for wheat.

Increase in oil prices over the last decade, has led to an increase in world oil production as both the US and Canada began extracting oil from sources that were once considered too expensive, such as shale and oil sands. The increase in world oil production in recent times has also been accompanied by slower Economic Growth

in Asia and Europe. Explain using demand and supply analysis the impact the above factors are having on the equilibrium price and quantity of oil. 4 MARKS

If a 10 percent increase in price of a product results in a 5 percent decrease in the quantity demanded, calculate and interpret the price elasticity of demand. In your answer, also explain the impact on total revenue. 3 MARKS

Assume the market price that perfectly competitive firms charge is below their average total cost. Using diagram(s) explain what actions the firm can take in the short run and in the long run. 5 MARKS

Critically examine, using the game theory matrix diagram and relevant assumptions, why there is a lack of price competition in markets where a few firms control the majority of the market share? In your answer, evaluate both the collusive and non-collusive scenario. Discuss some other ways in which firms operating in this type of market can compete.