1 When Iraq invaded Kuwait, the market price of crude petroleum jumped from $21.
ID: 1142499 • Letter: 1
Question
1 When Iraq invaded Kuwait, the market price of crude petroleum jumped from $21.54 per barrel to $30.50 per barrel—an increase of almost 42 percent. Your boss is puzzled, because the price increase actually occurred before there was a physical reduction in the current amount of oil available for sale.
a. Explain why the price of oil increased so rapidly.
b. One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level. Explain why.
2. You are an aide for the Senate Banking Committee chairman. He comes to you with a bill that proposes setting limits on what ATM owners can charge nonaccount holders, over and above what banks charge their own customers. Currently, large banks charge noncustomers an average fee of $1.35 per transaction in addition to the fees the customer's own bank imposes. The senator asks you to look at a proposal that would place a $0.50 cap on the fees ATM owners can charge noncustomers for accessing their money. If this legislation is enacted, what would be the likely Economic Welfare effects? (Hint: Look at effect on Consumer and Producer Surplus)
3. Discuss the Economic meaning of the Consumer Equilibrium condition.
Using the equilibrium condition explain why
demand curves are demand sloping,
the effects marketing and sales promotion on demand, and;
the effect of a change in tastes on demand.
4. Explain why the decision rule MR=MC is true for either the Long or Short run Profit Maximization.
5. Explain why the elasticity of demand for a firm’s product tends to be more elastic than the industry demand.
Explanation / Answer
>When Iraq invaded Kuwait in 1990, the market price of crude petroleum jumped from $21.54 per barrel to $30.50 per barrel - an increase of almost 42 percent. Your boss is puzzled, because the price increase actually occurred before there was a physical reduction in the current amount of oil available for sale.<br />a. Explain why the price of oil increased so rapidly.<br />b. One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level. Explain why.</p>
1.because of war -supply of reduced drastical lead to equilibrium price.
2. many oil producers hold the oil supply ---in relation with war
3. many oil producers decreased the the oil supply; ---in relation with war--------with expectation of higher price
4. increase in buying of crude; by the companies
5.increase in demand and decrease in supply -increase in price
One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level. Explain
one year after the invasion, the price of oil -demand s=supply curves shifted back----------to intial positions it was prewar level.
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