Good And A Bad Oil And Petrol Service Economics Essay

Good And A Bad anoint And Petrol Service Economics EssayWith reference to the case regard, hear clearly amongst a good and a bad service. answerA good service is customer oriented. In the case study companies such as Tesco, that offer blended gasoline offer a good service. Blended gas pedal has a uni crap worth, is a renewable energy source, and reduces greenhouse gas emissions. On the other hand, companies offering accelerator pedal offer a bad service since the prices of fuel vary between regions and adjoins pollution. nous 2. With reference to the production of either oil or bio-ethanol, excuse the concepts of s political machinecity and opportunity constitute. exerciseThe production of bio-ethanol requires resources such as corn, wheat, and maize. However, these resources be scarce, i.e. there ar non enough of the resources to feed the US world and to produce bio-ethanol. Thus, the production or the non-production of bio-ethanol raises the issue of opportunity co st. The opportunity cost of production is the omit of corn, maize, and wheat to feed the population. The opportunity cost of non-production includes the lack of a clean atmosphere due to the consumption of oil, which is a pollutant. top dog 3. Explain why the price of gas pedal is generally higher in rural atomic number 18as, such as North West Scotland, than in urban atomic number 18as. actThere is a higher invite for petrol in rural areas compared to the urban areas. The rural area plenty travel protracted by car and are more reliant on the car compared to the urban populations. Additionally, the rural population is not dependent on the earthly concern factor of transport as is the case in the urban areas. These factors ontogeny the acquire for petrol and thus its prices. An append in demand drives up prices. call into question 4. Explain why the demand for petrol is price inelastic, whilst the cross-elasticity of demand for a brand of petrol is high. final resultDes pite the price of petrol, people go away use their cars. Thus, even doubling the price of petrol does not signifi endtly affect the demand for petrol (Pindyck and Rubinfeld, 2008). This makes the demand for petrol price inelastic. Additionally, reducing the consumption of petrol requires significant changes such as operate less, purchasing a more fuel-efficient car, and using the public means of transport. However, the cross-elasticity of demand for a brand of petrol is high since the availability of petrol brands that are priced lower than petrol solutions to a shift in demand from petrol to the cheaper substitute. For instance, a reduction in the price of diesel motor would adept to a shift to diesel cars. headspring 5. a Draw a full designate diagram to show the sham on the demand for petrol of an amplify in the price of diesel fuel.b Clearly inform the impact on the demand for petrol of an increase in the price of diesel fuel. functionThe increase in price of diesel from P1 to P2 will result to an increase in the sum demanded of petrol from Q1 to Q2. The increase in the price triplets to a rise in the standard demanded of the substitute good. Petrol and diesel are close substitutes and an increase in the price of diesel will touch to an increase in the quantity demanded of petrol. The price and quantity demanded of substitute goods shake up a direct relationship.Question 6 a Draw a fully labeled diagram to show the impact on the demand for diesel powered cars of an increase in the price of diesel fuel.b Clearly explain the impact on the demand for diesel powered cars of an increase in the price of diesel fuel.AnswerDiesel and diesel powered cars are eulogistic goods. For complimentary products, if the price of unitary commodity is increased, it results to the consumers demanding less of the complimentary good. Thus, an increase in the price of diesel fuel from P1 to P2 will result in a decline in the demand for diesel-powered cars from Q1 t o Q2. The price and quantity demanded of complimentary goods are inversely correlated.Question 7 a Do you deal out petrol to be a normal good or an small good?AnswerNormal goodb Explain your answer to doubt 7a.AnswerThe quantity demanded for normal goods increase with an increase in income (Mankiw, 2008). The quantity demanded for petrol is likely to increase once income increases and vise versa. An increase in income will lead to more people purchasing automobiles. This will lead to a higher demand for petrol. The income elasticity of demand for petrol is positive. Otherwise, if the quantity demanded for petrol declines with an increase in income, petrol would be an inferior good.Question 8 a Explain how an oil company might increase the cut of oil in the short.AnswerThe leave of oil is inelastic in the short-run because of the significant be of production. Once an oil field has been constructed, the costs of running the field remain significantly the same irrespective of th e mental ability of operation. However, if the prices of oil increase in the short-run, the oil companies may increase the supply of oil since the marginal costs of production become insignificant.b Explain the impact on short-run costs of increasing supply in the short-run.AnswerAn increase in the supply of oil in the short-run leads to an increase in the marginal costs of production. The quantity of oil supplied in the short-run depends on the ability of the price increase to cover the marginal costs.Question 9 Explain the profit maximizing output of a watertight in the oil supply industry.The warm maximizes its profit at the agitate where MC=MR. This implies that the firm will continue to increase its production of oil until the point where no more profits can be generated (Mankiw, 2008).Question 10 a Which market place structure do you believe best describes petrol retailing in the UK.AnswerNon-collusive oligopolyb Explain your answer to question 10a.AnswerA small number of oil retailers characterize the market. The market is a high-volume, low profit margin implying that a variation in price by one firm affects the profitability of the other firms.c Identify one strategy that a petrol-retailing firm might choose when competing with other petrol retailing firms.AnswerA reduction in pricesd Explain the advantages and disadvantages of that strategy.A small discount on the price that is offered by the other firms in the oligopolistic market will lead to an increase in the sales of the firm offering the discount. The disadvantage of the strategy is that the other firms in the market are likely to follow suit and reduce their prices. This leads to Bertrand-Nash equilibrium where the long-run end is that the entire market will suffer a reduction in prices (Krugman and Wells, 2004).The firms can also compete on quantities. If a firm increases its quota of production, it will able to capture a larger market than the competing firms. However, it will lead to C ournot-Nash equilibrium when other firms adopt the same strategy (Krugman and Wells, 2004). An increase in prices reduces the prices in the market and firms suffer a reduction of prices.The use of petrol as a fuel for cars generates market failure in the form of externalities.Question 11a Explain why ignoring the externalities can result in the over-consumption of petrol.AnswerThe consumption of petrol produces externalities such as pollution and traffic congestion. If these externalities are not included in the prices of petrol, the price of petrol will not reflect the total cost of production. Thus, in a competitive market, the creation of un-priced externalities in the market will result in under set of oil and its subsequent overconsumption.b Explain how ONE policy instrument can reduce this market failure.Market-based instruments are among the policy measures used for reducing market failures. The strategy employs pricing and other economic variables to offer incentives for t he reduction of prohibit externalities. The method seeks to eliminate market failure caused by negative externalities by incorporating external costs of consumption and production. This is done through various means such as taxation, charges on products, establishing property rights, and establishing alternative markets for the consumption of environmental services.