Assuming that the government has decided to intervene and introduced a floor on prices.

Floor on prices

SP2, 2015

  1. This assignment is due in week 6 and is worth 25% of your overall assessment.
  2. You need to submit this assignment via Learnonline Gradebook.
  3. The word limit is 1000 words.
  4. Provide adequate referencing. Check this site for how to cite properly ( Failure to cite properly is evidence of academic misconduct and will result in marks being deducted or even 0 mark for the whole assignment in serious cases.


Read the article titled “Why the oil price is falling” (Source: The Economist, Date: Dec8, 2014) and provide the analysis for the following statements in 3 different sections.

  1. Use demand and supply models to illustrate what determinants have led the plummet of oil price. Make sure that you articulate the impact of the following factors: a. summer season; b. OPEC’s decision to maintain the output; c. Slowdown of world economy; d. technology advance in improving fuel efficiency and developing alternative fuel; e. increase in production in America. (7 marks)
  2. Discuss the determinants of the price elasticity of demandfor oil, and explain whether demand and supply for oil is elastic or inelastic. Based on your discussion of elasticity, illustrate the effect of price drop on the total revenue of a typical oil producer. (7 marks)
  3. Assuming that the government has decided to intervene and introduced a floor on prices. Illustrate the likely impact of such government intervention on the market. Conclude your analysis with comments on the benefits and drawbacks of the government’s price support policy. (7 marks)

Your assignment will also be assessed on how effective you can communicate with the reader; i.e. how well you have presented your arguments and ensured your analysis is logical and consistent. Consequently, 4 marks will be awarded for effective writing including proper grammar, referencing and formatting. Importantly, make sure you use appropriate diagrams in your analysis.


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