Calculate the price elasticity of demand for gasoline

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Reference no: EM132468505 , Length: 3 pages

Problem 1:

You made a decision to invest 10 million SAR (5 million borrowed from the bank and the other 5 million equity capital) in textile industry with life span of three years. The expected profit flows are 3 million, 4 million, and 5 million respectively, while the expected annual return on investment adjusted for risk is 6%.

Q1. Identify the implicit and explicit costs of the industry?

Q2. Calculate the present value of the industry? At which price can be currently sold?

Q3. Is the industry economically profitable? Explain?

Q4. What is the different between economic and accounting profit in this case?

Q5. What is the implication of unexpected high inflation rate on the value of the industry?

Problem 2:

Consider the general demand function and the supply function for dates in tons below:

Q_d= 60 - 2p + 0.01M + 0.5_r+ 6P_e

Q_s = 600 + 10P
Q_d = quantity demanded of dates in ton M = income
P = price of dates in SAR
P_r = price of related good(chocolate) P_e = expected price of dates
Q_s = quantity supplied of dates

Q1. Define the relationship between the price of dates and quantity demanded as well as the price and the quantity supplied? Is it consistent with the law of demand and supply?

Q2. Are dates normal good or inferior good? Explain?

Q3. What are the determinants of demand in the general demand function above?

Q4. Are dates substitute with the related product (chocolate)? Explain?

Q5. What is the effect of the increased quantity demanded by 20 ton, on the equilibrium price and quantity demanded and supplied? Is it a movement along the demand curve or shift in the curve itself? Explain?

Problem 3:

In the light of Saudi vision 2030, Saudi government increased gasoline prices more than once, in order to conserve energy and correct domestic energy prices to be an alignment with international market prices. The table below shows the changes in gasoline prices and consumption in the years (2015-2018):

Years	2015	2016	2017	2018
consumption of gas in million barrels	203.98	203.37	208.00	194.49
Prices of liter of gas in SAR	0.60	0.90	0.90	2.04
Prices of barrels of oil in SAR. barrel= 190.932 liters	114.56	171.8	171.83	389.5

Q1. Calculate the price elasticity of demand for gasoline over an interval (2015:2018)?

Q2. Is demand for gasoline elastic or inelastic? Explain?

Q3. What is the effect of gasoline prices increases on the demand for automobiles? Is cross price elasticity between automobiles and gasoline prices positive or negative? Explain?

Q4. What are the factors affecting price elasticity of demand for gasoline?

Q5. What is the effect of gasoline prices on the government income? How much of revenue was generated in 2018 in comparison to 2015?

Reference no: EM132468505

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