Assignment Sample on ECO701 Economics

Question 1

The slogan of the automobile store is describing about having no substitutes in the market. This can be happened only in the case of a monopoly market. One of the major characteristics of a “monopoly market” is that the number of seller is one and there are too many buyers. As the seller is one, buyers do not get many options to choose from (Burke and Abayasekara, 2018). This makes the price “elasticity of demand” to be less elastic or inelastic. The substitutability among commodities is zero in this case because only one seller s selling the commodity.

Question 2

Before the Covid 19 outbreak, the price of those sanitizers was 0.99 pounds. But when the outbreak is at its peak, the sanitizers’ price has increased. During this pandemic, the price rose to 2.49 pounds. The price has increased due to the sudden increase in the demand for sanitizers. During the outbreak, people are getting tensed and overprotective, therefore the increase in the demand has caused the rightward shift in the demand curve (Corriganet al. 2021). Price is increased and production cost will be increased too.

Question 3

  1. The “demand elasticity” for the price= “Percentage change” in the quantity/ “Percentage change” in price

= 2.5%/10%

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= 2.5/10

= 0.25

  1. TR= P*Q

=  2.5*10 = 25 rupees

Question 4

“demand equation” of the firm= 100-4P

 “supply equation” = -20+2P

  1. Inequilibrium, the “demand equation” equalsthe “supply equation”.

100-4P= -20+2P

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-6P= -120

P= 20

“Equilibrium quantity” is, 100-4×20 = 20

  1. The “equilibrium quantity” will be 20+60

= 80

The “equilibrium price” is, 80=100-4P

P= 5

Question 5

Inthe first case study, the firm’s “producer surplus” is 0.5*5*10 = 25 (by calculating the “area of triangle”)

The price is increased to “12 rupees” from 10 rupees.

As the price is getting increased it will also increase the quantity to 7 million,  then the “producer surplus” will be 0.5*7*12 = 42

Question 6

  1. The “price elasticity of demand” = -0.50

“Percentage change in price” = 5

“Percentage change in quantity” = 5*-0.50

                                                = -2.5

The “quantity demanded” will be decreased by the amount of 2.5%.

  1. The “price elasticity of demand” for “crispy chicken is” -1.12. As it can be seen that elasticity is greater than unity. This indicates that the demand is “elastic”. Increasing the price will have an opposite impact on the quantity demanded (Denson, 2019). “Total revenue” will also be decreased.
  2. The “elasticity of demand” is 100/1000 = 0.1
  3. When there will be more existence if those same commodities, then it mean the “elasticity of demand” will be greater because consumers have more options. The demand curve will become flatter.
  4. Demand is “less elastic” as the value of “price elasticity” is less than 1.

Question 7

Answer is 2.

The “equilibrium price” decreases from p star. The change in the “total quantity” cannot be said because it depends on the nature of elasticity. The quantity can be either decreased or increased from the equilibrium position depending upon the shift.

Question 8

  1. The “subsidy size” will be = (10-6) = 4 rupees
  2. Before levying subsidy, consumers paid 8 rupees, and then after levying subsidy, the consumers will be paying 6 rupees.
  3. Before the implementation of subsidy, sellers used to receive 8 rupees, but after the imposing of subsidy, the sellers will now get 6+4= 10 rupees.
  4. The “consumer surplus” before “imposing subsidy” was = 0.5*4*8 = 16

After subsidy= 0.5*5*10 = 25

  1. The “producer surplus” before the subsidy was= 0.5*4*8 = 16

Afterlevying subsidy = 0.5*5*6 = 15

  1. “Cost to the government” = 5*4 = 20
  2. “Deadweight loss”= 0.5*4*1= 2

Question 9

  1. free “market price” was = 8.52 rupees

Free “market quantity” was= 330 units

  1. After implementation of quota, the “equilibrium quantity will be” = 200 and the price is 12 rupees.
  2. “Triangle ABE” represents “consumer surplus”.
  3. The area of “Triangle A” is representing “Consumer surplus” after levying the quota.
  4. area belonging to “Triangle DCE” represents “producer surplus” before quota.
  5. “Triangle D” represents “producer surplus” after imposing the quota.
  6. “Triangle EF” represents “deadweight loss”.

Question 10

  1. “Quantity demanded”= 80-10P and Qs= 10P

“The equilibrium price” , 80-10P=10P

                                    20P=80, P=4

The “equilibrium quantity” =80-40 = 40 units

  1. “Consumer surplus”= 0.5*4*40 = 80

        “Producer surplus”= 0.5x 40×4 = 80

  1. If the government is imposing a “price floor” of 7, the supply will be excess. The “excess supply” will exceed the “required demand”. The actual quantity of almonds that will be exceeded the demand will be of sixty units.
  2. The “consumer surplus” after imposing “price floor” = 0.5*10*1 = 5 units

The “producer surplus” after imposing “price floor” = (0.5*10*1) + (10*6)

                                                            = 5+60 = 65 units

  1. “the deadweight loss” = 0.5*30*6 = 90

Question 11

The first “demand curve” is “more elastic” and flattened. The second “demand curve” is “less elastic” and steeper. The “expansion in demand” is larger than of the demand curve in secondthe  graph.

Question 12

  1. “Cost of imposing” the subsidy is ps-pc.
  2. Implementing the subsidy will cause the demand curve to shift to the right. For that reason “consumer surplus” is also increased. Gain to the consumers has been shown by the “area of PeECPc”. The “gain to producers” is indicated by PsSEPe. The “deadweight loss” is shown by the triangle ECS (Rizalet al. 2018). “Welfare loss” is measured with respect to the gain to customers along with the producers. The area of “total gain” if exceeded the area of “deadweight loss”, then the “social welfare” will be increased.

Question 13

Increasing the sales tax by at least 1 5, will have a greater effect on the “liquor owner shop”. The revenue that has been earned by the liquor shop owner is far higher than the revenue earned by the owner of “local video rental” store. Therefore the liquor shop will need to pay a greater amount than that of the video store owner.

Question 14

When the tariff is imposed, then the price of that imported commodity is risen in the domestic market. This has reduced the “consumer surplus” because the consumers will need to pay more now for this commodity (Steinet al. 2018). But as the price is increased, this will increase “producer surplus”. From the tariff rate, the government will also collect the revenue. The “deadweight loss” will indicate the total loss to the welfare.

Question 15

“Quantity” “Total revenue” “Fixed cost” “Variable cost” “Total cost” “Profit” “Marginal revenue” “Marginal cost”
0 0 10 0 10 0 0 0
1 18 10 8 18 0 18 8
2 36 10 20 30 6 18 12
3 54 10 38 48 6 18 18
4 72 10 65 75 -3 18 27
5 90 10 104 114 -24 18 39
6 108 10 156 166 -58 18 52

  1. b) Profit will be maximized when “marginal revenue” gets equal to the “marginal cost”. This has occurred in the above table at 3 units. This is the “equilibrium quantity”.
  2. c) At the level of “profit-maximizing output”, MC becomes equal to that of MR.
  3. d) when “fixed cost” decreases, the “total cost” will also be decreased because it is the summation of “total fixed cost” and “total variable cost”.

Reference List

Journals

Burke, P.J. and Abayasekara, A., 2018. The price elasticity of electricity demand in the United States: A three-dimensional analysis. The Energy Journal, 39(2).

Corrigan, J.R., Hockenberry, B.N., Lambert, V.C., Rousu, M.C., Thrasher, J.F. and Hammond, D., 2021. Estimating the price elasticity of demand for JUUL E-cigarettes among teens. Drug and Alcohol Dependence, 218, p.108406.

Denson, C., 2019. Price Elasticity of Demand for Mississippi State University: 2000-2014. Research in Higher Education Journal, 36.

Rizal, A., Aprilia, L., Nurruhwati, I. and Nurhayati, A., 2018. The Elasticity of Demand for Catfish Products (Clarias sp.) in Bandung City of Indonesia. World Scientific News, 102, pp.76-89.

Rizal, A., Aprilia, L., Nurruhwati, I. and Nurhayati, A., 2018. The Elasticity of Demand for Catfish Products (Clarias sp.) in Bandung City of Indonesia. World Scientific News, 102, pp.76-89.

Stein, J.S., Tegge, A.N., Turner, J.K. and Bickel, W.K., 2018. Episodic future thinking reduces delay discounting and cigarette demand: an investigation of the good-subject effect. Journal of behavioral medicine, 41(2), pp.269-276.

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