Microeconomic Assignment

 QUESTION 1

QUESTION 2

2. 1 Distinguish between an increase in demand and an increase in quantity demanded

In the economic, the quantity demanded refers a particular amount at a given price that represents the entire relationship among the various quantities demanded at a variety of the prices.  In this, the change in the price leads to changes in the quantity demanded. Typically, it refers to the certain point in the demand curve. Along with this, a change in the quantity demanded also represents the movement in the demand curve (De Jonghe, et al., 2012). The below graph shows that how a decrease in the price increase the quantity demanded:

[Source: De Jonghe, et al., 2012]

On the other hand, demand is a kind of the relationship between quantities demanded and price. The change in the elements other than the price of the service and goods can lead the change in the demand of the good and service.  Due to this, demand is not same as the quantities demanded. Generally, increase is demand can be recognized as a gain in the customer willingness to purchase the particular product and service (Renzetti, 2012). However, behind the increase in the demand various factors work significantly.  But, in this mail factor is price. The below graph shows that how the decline in the price becomes the cause of the increase in the increase in demand for quantity:

[Source: Renzetti, 2012]

2.2 Supply or Demand in the Following Situations

1. a) In the situation of improving the Australian economy, it is certain that various large overseas companies will decide to enter the supermarket business in Australia (Bruneel et al., 2002). In this situation, the completion will increase in the retail market and a wide range of the product will available for the customer at the lower price. In this condition supply will increase and customer can get the product easy that will lead to decrease in the demand.
2. b) In the situation when consumers suddenly decide that tattoos are unfashionable in the market than the demand will affect mostly. It is because demand always remains high in the condition of the fashion. Hence, the decision of the customer will lead to decrease in the demand. On the other hand, it is possible that supply will increase.
3. c) In the situation of, Department of Employment of Australia determines that playing computer games increases young people’s job prospects. It will improve the employment rate in the country and also enhance the expenditure power of the customer (Ruttan & Thirtle, 2014). In the economic, when the customers’ spend power increases then the demand and supply both increase.
4. d) In the condition of damage the coffee crop, it is possible that consumers will expect the price to rise sharply in the future. Hence, with this expectation the customer will move to purchase and sales will increase in the market. It indicates to increase in the demand for the product and as concerning of the situation the supplier will fail down. In the market, it can be seen generally that demand of a product increase when there is expectation that price of the product will increase in the future.
5. e) In the market when the price of air conditioners increases significantly then customer moves to substitutes to complete the needs of themselves. In this, it is also possible than customer will seek the competitors’ product price in the market. But, in the context of the demand and supply, customer demand will low and supply of manufacture will increase for short term (Borucke et al., 2013).
6. f) In the condition of price of the complementary product increase in the market than the price of the core product increase automatically. In this way, in the situation of increase in the price of reticulated water, the price of the soft drink market will also increase. Hence, due to this, the demand of soft drink may decrease. On the other hand, in the reverse situation, the decrease in the price of reticulated water, the price of the soft drink market will also decrease.
7. g) In this situation, if the government removes the excise tax on the cigarettes packet than the cost of the cigarettes will decline and price in the market will also decrease. Consumer of the cigarettes will increase in the market that will lead to increase in demand. It is generally concept that customers like the consumer a product that recently decreased in the price (Bowen & Sosa, 2014). On the other hand, if the government does not remove the excise tax from the cigarettes than the demand of the cigarettes will be constant.
8. h) In the market, the demand of a new invented product remains always high. However, price of the new product plays a significant role in the same of the product in the market. Therefore, it can be said that the price of the robot will influence the market of robot. At the same time, the price of the substitute and complementary product will also play a significant role in the robot market (Okrent & Alston, 2011). At the same time, income level of the customer can be also considered as the significant factors that can influence the robot market.

Linearity of the demand curve

On the basis of the above graph, it can be understood that how to demand curve work in the market when the price of the product decrease and increase. In this, it is found that when the price of the product decreases than there is most of chance to increase in the demand of the product.

QUESTION 3

Elasticity of demand

Income elastic of demand

This kind of the elasticity of demand evaluates relationship between the change in the real income and change in quantity demanded for goods and service. It is calculated by using the formula as percentage change in the demand divided by the percentage change in income. In the income elastic of demand, customer income one of the main factor that determines the demand for a product in the market (Bohi, 2013). In the other words, income elasticity of demand represents the ratio of the change in the quantity demand of the product and income change in the customer.

Price elasticity of demand

This kind of the elasticity of demand evaluates the reactivity of market demand after a change in a product’s price. It is one of the most significant concepts in the economics. The price elasticity of demand is calculated by using the formula as price elasticity of demand = % changes in the quantity demanded % change in price. Price elasticity of demand is a well known concept in the economic (Machlup, 2013). In order to measure the price elasticity of demand, it can be seen that the mail role of the change in the price. In this, it is not important to measure the reason why the price of the product is increased or decreased. Instead of this, change in the percentage is more important.

Cross elasticity of demand  

Cross elasticity of demand evaluates the demand of a particular good and service in the context of the change in the price and demand of related goods and service (Okrent & Alston, 2011). The cross elasticity of demand is evaluated in the percentage. In order to measure the cross elasticity of demand, complements and substitute products are measure by the economist. In the context of the substitute product, the cross elasticity of demand is found positive always. On the other hand, in the context of the complementary goods, the cross elasticity is found always negative.

References

Bohi, D. R. (2013). Analyzing demand behavior: a study of energy elasticities. Routledge.

Borucke, M., Moore, D., Cranston, G., Gracey, K., Iha, K., Larson, J., … & Galli, A. (2013). Accounting for demand and supply of the biosphere’s regenerative capacity: The National Footprint Accounts’ underlying methodology and framework. Ecological Indicators, 24, 518-533.

Bowen, W. G., & Sosa, J. A. (2014). Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press.

Bruneel, J., Ratinho, T., Clarysse, B., & Groen, A. (2012). The Evolution of Business Incubators: Comparing demand and supply of business incubation services across different incubator generations. Technovation, 32(2), 110-121.

De Jonghe, C., Hobbs, B. F., & Belmans, R. (2012). Optimal generation mix with short-term demand response and wind penetration. IEEE Transactions on Power Systems, 27(2), 830-839.

Machlup, F. (2013). Elasticity pessimism in international trade. In International Monetary Economics (pp. 63-80). Routledge.

Okrent, A. M., & Alston, J. M. (2011). Demand for food in the United States: a review of literature, evaluation of previous estimates, and presentation of new estimates of demand (No. 48). Giannini Foundation of Agricultural Economics, University of California.

Renzetti, S. (2012). The economics of water demands (Vol. 22). Springer Science & Business Media.

Ruttan, V., & Thirtle, C. (2014). The role of demand and supply in the generation and diffusion of technical change(Vol. 21). Routledge.