Bueco5903 Business Economics-Equilibrium Quantity Answers Assessment Answers
Questions:
Explain and draw a graph for each of the following effects on the market equilibrium for pizzas:
- Increase in your income by 0.4%
- Decrease in pizza prices by 6%
- Increase in prices of hamburgers (related product) to pizzas by 6.1%
- Increase in prices of flours by 13.99%
- Increase in petrol prices by 78%
- Shortage of tomatoes due to poor growing season
- Australia decided to sign the Convention on Climate change
- Australian government decided to increase immigration intake
- Italian manufacturer of pizzas oven invented much more efficient one
- Decrease in price of Cokes by 10%
- What are the two main differences between monopoly and competition
- What are the four principles of economic decision making
- If a firm in a competitive market doubles the amount of outputit sells, what is the impact on the firm's price and revenue
- Explain characteristics of public goods and common resources with examples.
Calculate elasticity if the price of a DVD player rises from $200 to $300, while the quantity demanded falls from 1200 to 900.
- classify the demand;
- calculate the total revenue before and after the price change
- calculate the percentage change in quantity demanded if price was to rise another 5% (using the price elasticity of demand calculated)
- calculate the percentage change in price needed to increase quantity demanded by 25% (using the price elasticity of demand calculated).
Answer:
The increase in income may lead to an increase in the consumption of pizzas which leads to an increase in the demand curve, the equilibrium price increases as well as the equilibrium quantity. in pizza prices leads to an increase in the quantity demanded for pizza that shifts the demand curve outwards. This leads to an increase in the equilibrium price as well as the equilibrium quantity.
Hamburgers are substitutes to Pizzas, increase in price of hamburgers will lead to an increase in the demand for Pizzas. This will shift the demand curve outward leading to an increase in the market equilibrium and an increase in the equilibrium quantity.
Increase in the price of flours may affect the factor prices during production and therefore the supply may decrease in response to the increase in factor prices. The supply curve shifts outwards which leads to an increase in equilibrium price while the equilibrium quantity decreases.
Increase in petrol prices may increase the cost of factors used in the manufacture of pizzas. The supply curve therefore contracts in response, this leads to an increase in the equilibrium price and a decrease in the equilibrium quantity Shortage of tomatoes affects the number of pizzas that can be produced. The supply curve contracts which increases the equilibrium price and decreases the equilibrium quantity.
The new convention may increase the cost of doing business in order for businesses to be compliant to the new regulations. This decreases the supply and shifts the supply curve to the right. The equilibrium price increases and the equilibrium quantity decreases.
Increase in the number of immigrants may make labor cheaper which may positively affect supply. The supply curve shifts leftwards and the equilibrium price decreases and the equilibrium quantity increases.
The increase in efficiency, increase the amount of pizzas supplied in the market. The supply curve shifts to S2 and the equilibrium price reduces while the equilibrium quantity increases.
Coke is a complementary product to pizzas, therefore if the price of coke decreases, the consumers are given sufficient capacity to buy more pizzas. The demand curve shifts outwards, the equilibrium price increases and the equilibrium quantity increases.
First, the difference is that in a monopoly there is one major player and many buyers while in a competition there are many buyers and many sellers.Second, in a monopoly, the firm is a price setter while in a competition, the firms are price takers.
People face tradeoffs that is they are first to meet their needs before they consider non-necessary needs.
People respond to incentives, people are bound to respond to more value for their money.
Rational People think at the margin, that is they consider the rational benefit they receive from a certain good.
The cost of something is what you give up to get it.The firms price may remain the same but the revenue will increase. The marginal revenue therefore increases.
The main characteristics of public goods are non-excludability and non-rivalry.
Non-excludability is the aspect of the usage of the good does not exclude any other person using that good.
Non-rivalry is the aspect that the consumption of the good does not affect the consumption of other users of the good
Examples of public goods are roads, railways and street lights.
Calculate elasticity if the price of a DVD player rises from $200 to $300, while the quantity demanded falls from 1200 to 900.
Elasticity = Change in Quantity/ Change in The demand is price elastic, there is a more than proportionate decrease in the quantity demanded in response to a price change.
Total Revenue Before – 200 * 1200
- = $24000
Total Revenue After – 300 * 900
= $27000
- calculate the percentage change in quantity demanded if price was to rise another 5% (using the price elasticity of demand calculated)
Initial Change in price =
= 50%
Increase to 55%
= 165% percentage decreas
= - 3* 25
= -75%
A 75% decrease in price.
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