Business Economics

Assignment 1
Group 1 (Ayush 8A, Nittin 21A, Bhargav, Krushnagi)

Business Economics 

Assignment 1 
Case Study | Hurricane Sandy: Supply, Demand, and Appropriate Responses to the Gas

Assume that all consumers in New York have the following utility function 
U = U (Gasoline, All Other Goods & Services) 

Solution 1

a) The initial equilibrium indifference curve is U-shaped curve as gasoline and other
goods and imperfect substitutes. The diagram shows the highest attainable
indifference curve with this budget line. This is the point where the budget line and
the indifference curve have the same slope which signifies that there is optimum
satisfaction reached and replacing or adding more of one good will not increase/add to
satisfaction level

So the equilibrium is a point at which consumer not have a tendency to re arrange his
purchases of two goods, Consumer do not have a tendency to re- allocate the budget, Also
Marginal rate of Substitution (MRS) equals to price of Pg / Price of Py.
We can explain the quantity willingly offered for sale by sellers at a given price is just equal
to the quantity willingly demanded by buyers at that same price
 1 b ) The factors affecting or having an impact on demand are –

i. Supply

Due to shortage of gasoline, we can see that the immediate demand remains same but for
the same quantity demanded, the supply runs short and shoots the prices up resulting in
higher price of the commodity. Now for the same price we get lesser quantity.

ii. Price of commodity

With increase in price of commodity, we can see a right shift of the demand curve
where for same price now we get less quantity of product.

iii. Price of complimentary

With increase in price of Gasoline a rise in the price of gasoline, we can see that the
complimentary goods like generator and grocery stores and hotels all prices were
increased as shown
 In later stages, the demand was affected due to the regulation of putting odd/even
number plates the gasoline on certain days. That decreased the demand and allowed to
ease out supply.

1 C)
Price consumption curve :- Price-consumption curve is a graph that shows how a
consumer's consumption choices change when price of one of the goods changes. It is plotted
by connecting the points at which budget line touches the relevant maximum-utility
indifference curve

Income – consumption curve

Income-consumption curve is a graph of combinations of two goods that maximize a
consumer's satisfaction at different income levels. It is plotted by connecting the points at
which budget line corresponding to each income level touches the relevant highest
indifference curve
Demand curve The demand curve is a graphical representation of the relationship between
the price of a good or service and the quantity demanded for a given period of time

Engel Curve graph is the relationship between the income & the qty consumed of a good or
service (closely related to ICC income consumption curve)
 As far as this case is concerned, this case is fundamentally an issue of supply
because demand for goods( Gasoline)and other services were very high at the time of
crisis due to hurricane, so the actual problem was not of the rising demand. The natural
disaster called hurricane sandy created a lot of chaos and critically damaged the
gasoline sector, power sector and grocery division of New York and new jersey and
this tends to harm the supply of goods and services. The increase in demand was
oppositely used by petrol pump, hotels and grocery store and they limited their supply
by charging more money from the customers.

Solution 2

The law of demand states that (with a few exceptions) as price rises, the quantity demanded
of any good or service would be lower. The law of supply implies that higher the price
received by a supplier, the quantity supplied will rise. Thus, demand is often a downward
sloping curve in the price-quantity plane, while supply is an upward sloping curve. The
intersection of the supply and demand curve denotes the market equilibrium, which in turn
determines the equilibrium levels of price and quantity of the particular good (or service) in
the economy. If the present demand for a good (or service) in the economy is higher than the
equilibrium quantity, the situation is described as that of an excess demand.

If we do demand supply analysis as mentioned in case study :- Prices rise not only for
gasoline, but also for other goods & services that are much needed. The shortage of gasoline
is due to a supply problem, as companies or suppliers may sell less gas due to a natural
disaster such as Hurricane Sandy, as gas stations were affected by a supply chain power
outage and disruption. In the absence of fuel, this led to the closing of several stations and
impacted the customer by having to wait for long queues to purchase gasoline at very high
prices.
We observe the move in the supply curve to the left due to the lack of capital to purchase
gasoline and government restrictions that did not encourage purchasing in other states, with a
drop-in supply without a change in price rises and quantity decreases, and changes in the
balance point.

Solution 3

 Price capping
 Fined on Price Gouging

Price gouging Prices rose in terms of gas scarcity, which is a change in demand curve,
dollar 20 a gallon was a high at the end of distributors and individual rise was dollar 2
a gallon due to the distribution services paid. The businesses that offer
complementary services and products took advantage of the situation and resulted in a
situation of price gouging. The hotel industry, grocery stores and traditional
foodstuffs were such industries. Generator prices shot up by $700 to $1200, This
indicates that due to more gas production, the increase in the price of complimentary
products. Increases in the price of complimentary goods contribute to a rise in the
production of goods by manufacturers. This is a scarcity situation as the demand is
strong and manufacturers take advantage of the advantage. While certain consumers
have not been affected by price sensitivity, this involves high-income consumers who
are prepared to pay a premium price and are able to buy even if the price is higher,
which is an exception to the demand rule, suggesting a situation of equilibrium. Thus
by listening to customer concerns and minimising their hustle for standing in the long
queues by enforcing the odd and even law for gas sold at the gas stations, government
action controlled the chaotic situation. Price gouging conditions were enforced with
stringent laws and prohibition in 30 states, fines were imposed on gas stations and
strict penalties were required to be imposed on companies and individuals to raise
their prices during emergencies Demand was governed by government interference.

 Reduce the line @ gas station (Odd even car no. plate)

Economic perspective: As far as economic perspective is concerned financial help

should be provided to the affected people from the storm i.e. hurricane sandy. Good
medical facilities, fooding stuff and various other goods and services should be provided to
them. The government should set up their own NGOs type companies that will help these
people in case of any natural calamity.

Ethical perspective: As far as ethical perspective is concerned, a person should possess a

good character like he should not use this disaster to earn hefty sum of money, these are
considered as unethical practices. I think every person should be on the same page in
case of a natural disaster like people should take decisions collectively, taking
decisions individually can make the situation more worse and this is unethical.

 Brainstorming the new avenues for shortage products

 COVID example for shortage of Oxygen
 Metrological department pre alert for the hurricane, so that consumers can store the
gasoline for future or interim consumption, in order to avoid the problematic situation.