Evaluate the impact of a fall in the price of oil on the market for diesel cars
3 sections:Analysis: what happens to supply/demand as a result?Application: in detail, what drives these changes in supply/demandEvaluation: how likely are these effects? are there any time lags? what factors decrease or increase the effects?
Supply-side effectsReduction in price of factor inputs (state them clearly, e.g. plastics used in cars, cost of running machinery)Supply shifts outwards: more cars provided at the given priceIncreased Q, decreased P
Demand-side effectsReduction in cost of complement (state it clearly, e.g. diesel or petrol): more affordableDemand shifts outwards: more cars demanded at the given priceIncreased Q, increased P
EvaluationWhich effect is larger? Quantity definitely increased, but will price increase or decrease?What if the oil price decrease is only for one quarter?What could the macro effects?
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