Business Econ545 Essay

1065 Words Oct 4th, 2012 5 Pages
Business Economics

Microeconomic Issue

1. Everyone’s Gasoline Problem:

We are all familiar with fluctuating prices of gasoline at the pump. Why does this happen? There are many factors that go into the price of gasoline. A quick and easy breakdown of what makes up the gasoline price (Shipp,2010) is the cost of crude oil is about 50-70%, Federal and state taxes about 19-25%, reefing costs and profits about 20%, and distribution and marketing costs about 10-12%. (Rex, 2010) Another factor is the clean air act in metro areas due to the congestion so prices in these areas are a bit more as refineries are forced to upgrade their operations to sell a blend that includes ingredients to
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Chapter 3, Question 14

Describe what will happen in this market as it moves to the new equilibrium.

The quantity demanded will go up for the premium blend while the premium coffee demand curve will shift to the left to reflect a decrease in demand due to the new premium blends as more people will favor more of the premium blend. (Stone 69) As an increase in demand alone when supply is constant both price and output will rise in the short run as it would create a shortage. Once the supply catches up to the demand in the long run then at that point is when the price will settle down as operations become more efficient and other coffee houses or the likes of Wawa Inc. start getting involved in offering premium blend coffee increasing the competition.

If a hard freeze eliminates Brazil’s premium coffee crop supply, assuming the demand remains constant (unchanged) then the supply curve will shift to the left as the supply with decrease, increasing the equilibrium price. (Mello 2012) Brazil is the largest coffee exporter in the world and any crop problems will affect the supply of coffee worldwide. A deep freeze will also affect the country’s economy as it is heavy reliant on this commodity for the country’s well-being. The demand for coffee in Brazil itself have more than doubled in the last twenty-two years

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