Explain how an increase in price affects the quantity

Assignment Help Managerial Economics

Reference no: EM134021365

Economics for Managers

Question 1
"Just days into the largest military operation undertaken by the United States since the 2003 Iraq invasion, the potential closure of the Strait of Hormuz has triggered the most severe energy supply disruption since Russia's invasion of Ukraine" (Global Trade Management, March 4, 2026, reports).

Required:
Assume you own a retail business in Mumbai, India.

a. Draw a microeconomics graph to explain how an increase in price affects the quantity demanded of the goods or services sold to consumers in India.

b. Draw a new figure depicting the following situation: Assume that supply chain disruptions and consumer stockpiling arising from the U.S.-Iran war increase demand for the goods or services sold by your business in India. At the same time, wages for your workers increase. Use a microeconomics graph showing the new equilibrium position for your firm. Provide a brief report to management explaining the likely effects of the new equilibrium position on the price, quantity sold and profitability of your business. Concepts related to Aggregate Demand and Aggregate Supply may be useful for analysis.

Question 2
Jessica quit her job as a teller in a bank earning AUD 80,000 per year, to start her own food kiosk business. To save on rent, Jessica utilized her own property. She normally earned an annual rent of AUD 50,000 from this property. Also, to start the business, Jessica used AUD 70,000 of her own savings, on which she earned 4% interest per year. Furthermore, to start the business, Jessica borrowed AUD 40,000 from the bank and paid 6% interest per year.

Jessica's first year of business can be summarized as follows:

Required:
Based on your calculations of accounting profit and economic profit, advise whether Jessica should return to her bank position or continue operating the food kiosk business. Justify your recommendation and show all workings.

Question 3
"Unless de-escalation signals emerge swiftly, we expect a significant upward repricing of oil," said Rystad Energy's Jorge León, head of the company's geopolitical analysis, citing the immediate impact of the halting of traffic through the Strait of Hormuz.

Required:
Assume the Federal Government of Australia provides petroleum import licences to only three (3) companies. Answer the questions that follow.

a. Examine the characteristics of the market structure and discuss the likely economic effects of authorising only three (3) companies to import petroleum products into Australia.

b. Using an appropriate diagram, explain the price elasticity of demand for the market structure of the three (3) firms that have been authorised to import petroleum products in Australia.

Question 4
The U.S. war on Iran is widely expected to boost inflation across the world, with a sustained rise in oil prices rippling through the wider economy.

Required:
Read the provided case study carefully and answer the following questions.

a. Examine the direct impacts of inflation on Australian households.

b. Using an appropriate microeconomic graph, explain how higher inflation resulting from rising oil prices may affect unemployment and economic activity in Australia.

Question 5
Suppose that, before the U.S.-Iran war, the Australian economy is operating at full employment (potential GDP).

Required:
Using appropriately labelled AD-AS diagrams, explain how each of the following events would affect the Australian economy in both the short run and the long run.

a) A recession in Australia caused by the U.S.-Iran war reducing manufacturing activity. 5 Marks. The AS-AD model may be used when presenting the required diagrams.

b) Significant union wage demands across Australia result in a substantial increase in wages and salaries.

Reference no: EM134021365

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