Econs
Answers of Managerial Economics Homework #2 Chapter 5~Chapter 9
1.Using figure 5.3 as a basis, construct a series of four figures to show the effect of an increase in the demand for tanker service on the market price when (a) demand is extremely inelastic, (b) demand is extremely elastic, (c) supply is extremely inelastic, and (d) supply is extremely elastic.
Answer:
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2.Industry researchers R.S. Platou predicted that, between 2003–04, oil prices would fall by 5%, production of oil by OPEC and the former Soviet Union would increase, and deliveries of new tankers would exceed scrappage of older vessels. (Source: Platou Report 2004, www.platou.com).
a. Using suitable diagrams, explain how each of the following would affect the market for tanker services: (i) a fall in oil prices; (ii) an increase in production by OPEC and the former Soviet Union; (iii) new tanker deliveries; and (iv) scrappage of older vessels. b. Suppose that the net effect is to increase tanker rates. Illustrate the net effect on a single diagram. Explain the impact on the quantity of tanker services used. c. In actuality, oil prices increased by 25% between 2003 and 2004 and OPEC and the former Soviet Union production increased by about 10%. Modify your analyses in (a) for these changes.
Answer: a) Fall in oil price would reduce the operating costs of tankers, and hence, increase the supply of tanker services. Increase in oil production would increase the demand for tanker services. New tanker deliveries would increase the supply of tanker services, while scrappage would reduce the supply.
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b) Please refer to diagram below. Quantity of tanker services used could be higher or lower, depending on the elasticities of demand and supply.
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c) In actuality, oil prices increased rather than fell. The net impact on the supply is ambiguous: it depends on which effect
1.Using figure 5.3 as a basis, construct a series of four figures to show the effect of an increase in the demand for tanker service on the market price when (a) demand is extremely inelastic, (b) demand is extremely elastic, (c) supply is extremely inelastic, and (d) supply is extremely elastic.
Answer:
[pic]
[pic]
[pic]
[pic]
2.Industry researchers R.S. Platou predicted that, between 2003–04, oil prices would fall by 5%, production of oil by OPEC and the former Soviet Union would increase, and deliveries of new tankers would exceed scrappage of older vessels. (Source: Platou Report 2004, www.platou.com).
a. Using suitable diagrams, explain how each of the following would affect the market for tanker services: (i) a fall in oil prices; (ii) an increase in production by OPEC and the former Soviet Union; (iii) new tanker deliveries; and (iv) scrappage of older vessels. b. Suppose that the net effect is to increase tanker rates. Illustrate the net effect on a single diagram. Explain the impact on the quantity of tanker services used. c. In actuality, oil prices increased by 25% between 2003 and 2004 and OPEC and the former Soviet Union production increased by about 10%. Modify your analyses in (a) for these changes.
Answer: a) Fall in oil price would reduce the operating costs of tankers, and hence, increase the supply of tanker services. Increase in oil production would increase the demand for tanker services. New tanker deliveries would increase the supply of tanker services, while scrappage would reduce the supply.
[pic]
b) Please refer to diagram below. Quantity of tanker services used could be higher or lower, depending on the elasticities of demand and supply.
[pic]
c) In actuality, oil prices increased rather than fell. The net impact on the supply is ambiguous: it depends on which effect