Practice

Free response question

Microeconomics · Hard · 25 marks

EO past paper: 2022 International Final

Suppose that imports of crude oil to Europe are reduced. Use the ideas of the model of supply and demand.

(a)What will be the impact on the price of petrol (gasoline) at the petrol stations in Europe and why? What will be the impact on the quantity demanded and the quantity supplied?[6](b)Suppose that the government fixes the price that prevailed before the reduction of imports. What will be the impact of this regulation on the competitive market? What will be the effect on the quantity demanded and the quantity supplied?[6](c)Assume that this regulation is prolonged over a longer period of time. Is supply and demand more or less elastic in the long run compared to the short run? Compare the short-run and the long-run impact of this regulation on the market.[6](d)Consider that the market is no longer competitive and there is only one single firm, a monopoly. When the government sets a fixed price for the monopoly, can the outcome differ from the competitive market? Explain your answer in detail.[7]

Up to 5 AI marks a day. The mark scheme is shown after marking.

Report a mistake