Wednesday, December 11, 2019

Differential Effect Of Oil Demand Supply -

Question: Discuss about the Differential Effect Of Oil Demand Supply. Answer: Introduction: Microeconomics is a basic tool to analyse and understand various economic situations. Here, newspaper analysis will be taken to understand some basic concepts. These basic concepts are production possibility frontier, demand and supply, different types of demand and supply elasticity and equilibrium of price and quantity. Moreover, diminishing marginal utility and the concept of budget line are also very important. Here news paper analysis will be done to understand these basic concepts of microeconomics. Hence, to do this research, six different newspaper articles have been chosen. From those articles, it will be seen that which types of microeconomic factors are operating. Moreover, to demonstrate those factors clearly, some proper diagrams will be drawn. At the end, an overall conclusion will be drawn, based on those analyses. Analysis of articles: Scarce resource: In Venezuela, due to high rate of inflation, the value of Bolivar becomes low. Moreover, people are getting very low amount of money from bank. Market price of every product becomes very high. However, consumers cannot purchase those products within their limited income. On the other side, due to black market, the exchange rate of Bolivar becomes very high (CNNMoney 2018). To control this situation, the government of this country has set a withdrawal limit of money from bank. Hence, due to higher amount of inflation, Bolivar has lost its value. On the other side, due to higher black money exchange rate, one person can get higher amount of Bolivar for $1. Those all effects have increased total money supply in Venezuela. The government of this country is trying to control this excessive inflation by limiting the amount of money lending from banks (Varian 2014). This will further create a black market and will increase the value of exchange rate f Bolivar in international market. Figure1: increase supply of Bolivar Source: (created by author) High rate of inflation has increased total market supply of Bolivar. On the other side, due to black money operations, money holders are offering more Bolivar for one unit of dollar. This again increases the supply of Bolivar in the market. As a result, the supply curve has shifted from left to right (S0 to S1). In the above diagram, this extra amount of money supply (Q0 Q1) represents this excess amount of Bolivar in the country. Moreover, the price value of this currency has decreased by P0-P1 amount. Demand and supply: The cost price of Christmas tree has increased in 2017. In 1974, the price of those Christmas tree was $30 each. However, in 2016, it was $95 and in 2017, it was $110 for each tree. The reason behind this increasing price of Christmas tree is shortage of supply all over the nation. Moreover, due to high competition with big box stores, the profit rate of those side vendors may decrease (Ferr-Sadurn 2018). They also pay extra charge for selling their products in New York. These are the chief reason behind the increasing price of Christmas tree in this city. Moreover, to cover up their low level of revenue from cheaper locations, they increase their Christmas tree price in this city. The demand curve of those Christmas tree vendors represents this situation (Cashin, Mohaddes, Raissi and Raissi 2014). As the supply of Christmas tree has decreased, it will increase the price level. Figure2: increasing price level of Christmas tree due to lower supplier Source: (created by author) In the above figure, as the supply of Christmas tree has declined due to shortage. The new supply curve is S1. As a result, the price of this product has also increased and become P1. Market equilibrium: In Jakarta, demand for new office spaces will increase in the coming year. According to a report, this demand for extra office spaces will be almost triple. This is because some e-commerce companies are expanding rapidly (Post 2018). As a result, rental charges may increase further. However, due to increasing amount of office buildings, rental charges will not increase. As they are providing extra office spaces in upcoming years, the rental charge will remain almost same. This increasing demand and supply effect of office spaces can be analysed by a suitable diagram. Figure 3: Market equilibrium of office space in Jakarta Source: (created by author) In the above figure, the initial demand and supply curve of office space in Jakarta are drawn. The initial demand curve is D0 and the initial supply curve is S0. After the mentioned increasing demand for new office spaces, this demand curve has shifted to upward, that is, D1. In this new demand curve, the rental amount could be P1. However, the supply of housing space is also increasing in next year (Varian 2014). This S1 curve is showing this effect. Hence, the amount of rent will be same in future, as well. Elasticity: In the article of IPhone X, the effect of own price elasticity can be observed. Here, IPhone X is a highly elastic product. Hence, the slight change of the price of this phone will affect its demand negatively (Post 2018). The price of this Apple phone is very high. Moreover, the company is not introducing any new features to increase consumers attraction. Hence, the demand for this IPhone is decreasing over the year. Moreover, due this decreasing amount of demand, country is also decreasing their amount of shipping. Hence, being elastic good, a small change of price can greatly influence the overall demand of this phone. The following figure has shown this effect. Figure4: Price elasticity of IPhone X Source: (created by author) In the above diagram, an elastic demand curve of IPhone is drawn. Initially, the supply curve was S1. Hence, the corresponding price of Iphone was P1 for Q1 amount. As the price of this phone is very high and there are no new features within the phone, the world demand has reduced to Q0 level. As a result, the supply of IPhone has also decreased by S0 amount (Yan, Tian, Heravi and Morgan 2017). This is the chief reason behind the decreasing amount of shipments, that is, 30 million units to 25 million units within 3 months. Elasticity: Trump tower is another example of elastic product in India. Being luxurious products, the demand for those apartments are increasing significantly. In Gurgaon, people are buying new Trump apartments rapidly. Moreover, the demand of those residential places of Trump brand is increasing in Mumbai, Pune and Kolkata (Iyengar 2018). Builders are selling those branded apartments with very higher prices. Those prices are higher than 30%, compare to other similar properties. Hence, producers or builders of those projects will earn producer surplus. Producer surplus is an amount that they can enjoy at anytime. In a competitive market situation, there exists an equilibrium price for a particular output. However, consumer can pay more to achieve that product. This extra payment of consumer is considered as producer surplus. Figure5: Producer Surplus Source: (created by author) In the above diagram, the triangle P1 E P0 represents producer surplus. In general, the market price of any apartment is P0. However, people want to buy Trump apartment at P1 price, as it is a luxurious product. Hence, the producer or developer will enjoy a surplus. Budget Line: Carillion is one of the largest construction companies in U.K. However, after financial crisis, the company is planning to sale their assets. To maintain this loose, the British Government has decided to provide finance to continue their operational services. The government has done this to continue public services (Iyengar 2018). However, according to some critics, this decision of government is wrong. There is no future prospect for Carillion to grow further. On the other side, the budget of British government will be increased further. The budget line of the British government can illustrate this above statement (Luo 2014). As the government will provide more funds to this government, the budget line will shift upward in the vertical portion. Figure6: Budget line of the British Government Source: (created by author) In the above figure, as the government has increased their financial support for Carillion. As a result, the budget line of the government has shifted upward in the vertical axis. The initial budget line was Pc0 Pa. After providing financial support, the new budget line becomes Pc1 Pa. There is an increment of this line from Pc0 to Pc1. Conclusion: Hence, from the above discussion, the report can conclude an overall situation. In every part of daily life and economic activities, micro economic concepts are always present. The basic demand and supply tool can use in every situation. Moreover, nature of a product also indicates the elasticity of demand. This report has presented the concept of demand elasticity related to IPhone and Trump building. Furthermore, a newspaper article has represented the concept of producer surplus. On the other side, budget effect indicates the British government expenditure. Hence, this report has analysed almost every concepts of microeconomics. Reference: Cashin, P., Mohaddes, K., Raissi, M. and Raissi, M., 2014. The differential effects of oil demand and supply shocks on the global economy.Energy Economics,44, pp.113-134. CNNMoney. (2018).Venezuela's cash crisis: You can't get $1 from a bank. I tried.. [online] Available at: Ferr-Sadurn, L., 2018.How Much for That Tree? $35 in Harlem, or $135 in SoHo. [online] Available at: Iyengar, A., 2018.Carillion: Construction firm with 43,000 employees collapses. [online] CNNMoney. Available at: Iyengar, R., 2018.Trump's India partner sees 'overwhelming' interest in Gurgaon apartments. [online] CNNMoney. Available at: Luo, C., 2014. Questioning the soft budget constraint.Annals of Economics and Finance,15(1), pp.403-412. Post, T., 2018.Demand for office space to soar next year. [online] The Jakarta Post. Available at: Post, T., 2018.IPhone X forecasts cut, citing lukewarm demand. [online] The Jakarta Post. Available at: Varian, H.R., 2014.Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton Company. Yan, J., Tian, K., Heravi, S. and Morgan, P., 2017. The vices and virtues of consumption choices: Price promotion and consumer decision making.Marketing Letters, pp.1-15.

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