Assignment:
Question 1
Excerpt from BBC NEWS (On 16th September, 2019)
The facilities came under attack at 04:00 (01:00 GMT) on Saturday. Online videos showed explosions and large fires at the Abqaiq oil processing facility in Saudi Arabia.
Analysts have identified at least 17 hits.
An unnamed senior US official told ABC News that the attacks on the Abqaiq refinery had involved a dozen cruise missiles and more than 20 drones.
Abqaiq is the world's largest oil processing facility, and about two-thirds of Saudi Arabia's total output is refined there. Some seven million barrels of oil arc processed each day.
The facility refines crude oil pumped from the Ghawar field, and is connected to both the Shaybah oil field through a 636-km (395-mile) pipeline and an export terminal in Yanbu.
Activities required:
Asa manager of a health care drug producing firm in Dammam,
i) what do you think the effect would be on the market equilibrium price and quantity of the crude oil; and
ii) what is the likely effect on the product of your firm in terms of price and quantity?; and
iii) what decision are you likely to make in your firm on that same day of September 16m, 2019
Question 2
Case Study: Shall we put up our Price?
Competition, price and revenue
When you buy a can of drink on a train, or an ice-cream in the cinema, or a bottle of wine in a restaurant, you may well be horrified by its price. How can they get away with it?
The answer is that these firms are riot price takers. Instead, they can choose what price to charge. We will be examining the behaviour of such firms in Chapters 4 and 5, but here it is useful to see how price elasticity of demand can help to explain their behaviour.
Take the case of the can of drink on the train. If you are thirsty, and if you haven't brought a drink with you, then you will have to get one from the train's bar, or go without. There is no substitute. What we are saying here is that the demand for drink on the train is inelastic at the normal shop price. This means that the train operator can put up the price of its drinks, and food too, and earn more revenue.
Generally, the less the competition a firm faces, the lower will be the elasticity of demand for its products, since there will be fewer substitutes (competitors) to which consumers can turn. The lower the price elasticity of demand, the higher is likely to be the price that the firm charges.
Some firms deliberately try to prevent competition. For example, many cinemas prohibit you from taking drinks and snacks into the performance unless you have bought them at the cinema. This allows them to put a 1000 per cent mark-up on popcorn!
When there is plenty of competition, it is quite a different story. Petrol stations in the same area may compete fiercely in terms of price. One station may hope that by reducing its price by 1p or even 0.1p per litre below that of its competitors, it can attract customers away from them. With a highly elastic demand, a small reduction in price may lead to a substantial increase in their revenue. The problem is, of course, that when they all reduce prices, no firm wins. No one attracts customers away from the others! In this case it is the customer who wins.
Activity required:
Take any two products or services you know, and explain why one of them would attracts high price and the other one attracts lower price, and relate this with the concept of elasticity?
The mark here would be apportioned on how relevant you relate it with the real life situation.
Question 3
The price of a cylomatine drug falls from 100 riyal to 90 riyal. The quantity of cylomatine drug demanded rises from 15,000 per year to 20,000 per year.
Activity required
i) Use the midpoint formula to calculate the price elasticity of demand for cylomatine.
ii) Is the demand elastic, inelastic, or unit elastic?
iii) What would the Pharmaceutical firm selling the drug do if it needs to increase its total revenue?