Economics quiz

Economics quiz

PART ONE

Elasticity

  1. Question One

The price of crude oil has fallen significantly in 2015.On the other hand, the demand for Crude oil in 2015 has risen and remained high. For example, in September, the price of oil fell to $40 per barrel, and the demand for oil increased by 4%. Price elasticity of demand economic theory supports this relationship. In this case, the demand for oil price has very elastic. A slight change in price triggers high demand for the crude. The elasticity of demand is illustrated in Figure 1.0 below:

Figure 1.0

 

  1. Question Two

Given that the price of oil dropped by 30% and the demand rose by only 2%, the demand for crude oil has relatively inelastic price elasticity of demand (McEachern, 2014). In a relatively inelastic price elasticity of demand, a significant change price only leads to less change in the quantity demanded. Relatively inelastic demand is considered to be less than unity. The Price elasticity of demand for crude oil is 0.007 making it relatively inelastic demand as illustrated below:

The price elasticity of demand is Percentage changes in demand / percentage change in price

= 2% ÷ 30%

= 0.007

  1. Question Three

I disagree with the opinion expressed in source one, that Commodities such as crude oil are usually the ultimate definer of price elasticity of demand. The changes in price and demand for oil is relatively inelastic. This shows that when the price of oil is low, we do not use a lot more of it, and when……………………….

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