The paper "An Increase in the Price of Natural Gas" is a great example of an assignment on macro and microeconomics. Period 1: A decrease in the price of natural gas is bound to reduce the supply as some of the suppliers won’ t be willing to supply gas at a lower price. This is matched by the fact that technological advancement is also going to reduce the cost which would thereby determine the supply based on the strength of the price reduction and better technology due to technological advancement.
Demand, on the other hand, is going to increase due to the use of natural gas in different vehicles aided by the reduction in price and will look as follows The above graph shows the reduction in supply from S1 to S2 and an increase in demand from D1 to D2. The overall impact is such that quantity demanded supplied falls which increases the prices which are aided by the increase in demand for products resulting in a change in equilibrium quantity from Eq1 to Eq2 and price from Ep1 to Ep2 as shown in the graph above. Period 2: An increase in the price of natural gas along with a reduction in the demand for natural gas will have an impact on both the demand and supply as shown in the graph below An increase in the price matched by a decrease in demand will result in a shift in the demand and supply curve as both of them will fall.
This will result in a reduction in the demand for natural gas from Eq1 to Eq2 and an increase in the price from Ep1 to Ep2 which will have an impact on the equilibrium to shift from one point to the other thereby having an impact on price and demand. Question 2 P = 12000 - . 16Q P = 400 So, 400 = 12000 - . 16Q Q = 72,500 cups If price reduces by 25 cents so price is 375 Therefore, 375 = 12000 - . 16Q Q = 72656.25 cups Total Revenue = 72500 * 4 = 290000 Revenue after reduction in price = 72656.25 * 3.75 = 272460.94 Reducing the price will result in a decrease in total revenues which should thereby not be undertaken and will result in a loss for the business.
The price elasticity also shows that a reduction is price increases demand but only slightly.