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Petrol tipped to hit 85 cents
1. Assuming that petrol operates in a perfectly competitive market, use a well-labelled demand and supply (D-S) model to explain how market equilibrium price of petrol is being determined. Please clearly explain the equilibrating process.
2. Using the demand and supply model, explain and illustrate what factors have caused the market price for petrol to fall. In your answer clearly explain the connection between the global wholesale price of oil and the price for petrol at the domestic retail level. Clearly explain the equilibrating process in the retail market for petrol.
3. Give an example of a complementary good to oil and use the demand and supply model to explain the likely impact on this related market in terms of changes to equilibrium price and output.
4. Do you think the demand for petrol is price elastic or price inelastic? Explain your answer based on the determinants of price elasticity of demand and also by making reference to the newspaper articles excerpts relating to the likely impact on consumers' total expenditure on petrol. Use a diagram to illustrate your answer.
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