Question

Including the use of relevant diagrams, provide an analysis of the key factors which determine the market equilibrium and price of the goods and services in the following scenarios:

1. The effect on the world market equilibrium for petrol in the event of a war breaking out in the Arabian Gulf region.
2. The effects of a health scare (e.g. the coronavirus) on tourism into Ireland during 2020.
3. The effect of the recession from 2009 to 2014 in Ireland on the market for takeaway foods.
4. The effect of a mediocre summer in 2019 on the market for foreign holidays for Irish citizens in January 2020.

Answer 1

In all graphs, D0 and S0 are initial demand and supply curves intersecting at point A with equilibrium price P0 and quantity Q0.

(1)

War in gulf area will decrease oil supply, shifting supply curve leftward, increasing price and decreasing quantity.

In following graph, S0 shifts left to S1, intersecting S0 at point B with higher price P1 and lower quantity Q1.

(2)

A health scare will decrease demand for tourism, shifting demand curve leftward, decreasing both price and quantity.

In following graph, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(3)

A recession will lower consumer income. Takeaway foods being an inferior good, decrease in income will increase its demand, shifting demand curve rightward, increasing both price and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

(4)

A mediocre summer will increase demand for foreign holidays, shifting demand curve rightward, increasing both price and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.