Economics: Opportunity Costs, Demand and Supply Analysis, Inelastic Demand, Price Control Effects, Average Cost and Marginal Curves

This document discusses various topics in Economics such as Opportunity Costs, Demand and Supply Analysis, Inelastic Demand, Price Control Effects, Average Cost and Marginal Curves. It includes examples and figures to explain the concepts.

ECONOMICS
ECONOMICS
NAME OF STUDENT
NAME OF UNIVERSITY

ECONOMICS
1.Opportunity costs
Opportunity cost is the foregone alternative when one of the many alternatives is chosen
(Pettinger, 2017). An example of what I experienced last weekend when I had three events to
attend. The events were happening concurrently. The events were a networking opportunity
and a bithrday event. I attended the networking event .The opportunity cost was the fun and
friends I would have made if I attended the birthday party.
2.Demand and supply analysis.
a.When there is a sharp fall in average wages.
As beef is a normal good ,the law of supply and demand will result in decreased demand for
beef when there is a sharp decrease in average wages. The demand curve will shift
downwards to (Demand 2) . In this case the depressed demand is not due to price of beef
which has not changed (“3.1 Demand, Supply, and Equilibrium in Markets for Goods and
Services – Principles of Economics,” 2013). The initial equilibrium price (25) and quantity of
(4) will change and move downwards to 22,5 and quantity 3,5.
Figure 1
0 1 2 3 4 5 6 7 8
0
5
10
15
20
25
30
35
40
45
Demand and Supply
Demand 1 Demand 2 Supply
Quantity
Price
b.When farmers have access to high quality feed which has reduced the time it takes to take
the beef to the market.
This scenario creates excess capacity as farmers are producing more beef and also the beef is
now being readied for the market more faster than before. When there is excess supply the
prices have to go down so that the market can aborb the increased supply.

ECONOMICS
Figure 2
0 1 2 3 4 5 6 7 8
0
5
10
15
20
25
30
35
40
45
50
Demand and supply
Demand Supply 2 Supply 1
Quantity
Price
The effect of increased supply will create an excess supply which will force down prices to
match demand ("Changes in equilibrium price and quantity: the four-step process", 2019).
The shift in supply curve will see the equilibrium price and quantity move from 28 and 3,4 to
22 and 4,5.
c.When there is mass slaugher of cows and government advisory against beef consumption.
In this scenario we can have two outcomes
(i) the demand and supply curves will shift downwards.Equilibrium prices and quantities will
go down . Consumers will move to other alternative souces hence reducing demand .The
supply is also limited as beef is restricted to the market. The new equilibrium point is now
down from quantity 4,5 and price 25 to quantity 20 and price 4.

ECONOMICS
Figure 3
0 1 2 3 4 5 6 7 8
0
5
10
15
20
25
30
35
40
45
50
Demand and Supply
Demand Demand 2 Supply 2 Supply 1
Quantity
Price
(ii) the demand will remain constant and supply will decrease.
The prices will go up as the equilibrium price and quantity will be higher (Agarwal, 2019).
Prices will be up as there is scarcity as demand is more than supply.The supply curve will
shift to the left.
New equilibrium
Figure 4
0 1 2 3 4 5 6 7 8
0
5
10
15
20
25
30
35
40
45
50
Demand and supply
Demand Supply 2 Supply 1
Quantity
Price

ECONOMICS
3.Inelastic demand.
When the major heroin dealers are arrested ,the supply lines will be interrupted and this will
create a shortage that will lead in increase in prices.The demand is inelastic which means that
demand will not change as the prices go up (“SparkNotes: Elasticity: Elasticity”,2019).
In our example ,there will be a upward shift in the supply curve. The new equilibrium will
result in a higher price and lower quantity as the demand curve will not shift. At supply of
quantity of three units the new price will rise to 35 from 32.
Figure 5
0 1 2 3 4 5 6 7 8
0
10
20
30
40
50
60
70
80
Supply and demand
Demand Reduced Supply Supply
Quantity
Price
4.Effects of price control of super chicken.
The demand will be high in the coming festivities while the price is fixed. High demand leads
to increase in prices. In our case ,the high demand will not lead to a increase in prices as the
governrmnt has set a cap on price. As long as the set price is below the equilibrium ,the
supply will not increase as it is not profitable to supply the chiken. The consequence will be a
shortage of super chiken in the market. This shortage may lead to unforeseen effects (Baetjer,
2014).

ECONOMICS
Figure 6.
0 1 2 3 4 5 6 7 8
0
10
20
30
40
50
60
70
Demand and supply curve
Price Demand Supply
Quantity
Price
5. Average cost and marginal curves and why a company will still produce even when it
cannot sell at a profit in current period.
Ideally a firm should produce when the marginal revenues are greater than the marginal costs.
This is to say that any additional production is at least covering the variable costs. A business
should review it going concern viability when the marginal profit is zero.This may not be
optimal in the short run but in the long run the business conditions may improve .Such
conditions are like rising prices and reduced production co
sts. In the course of production the marginal cost will rise above marginal revenues when the
market matures and the business is increasing production. This creates a mismatch in costs
and revenue.However ,in the long run the business will stabilise by having the right mix of
production and business conditions improving (Production Decisions in Perfect Competition |
Boundless Economics,2019)

ECONOMICS
Figure 7.

ECONOMICS
References.
3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services – Principles of
Economics. (2013). Retrieved from Opentextbc.ca website:
https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-
equilibrium-in-markets-for-goods-and-services/
Agarwal, P. (2019). Supply and Demand Equilibrium | Intelligent Economist. Retrieved
from https://www.intelligenteconomist.com/supply-and-demand/
Baetjer, H. (2014). The Problems with Price Controls. Retrieved May 22, 2019, from
Libertarianism.org website: https://www.libertarianism.org/guides/lectures/problems-
price-controls
Changes in equilibrium price and quantity: the four-step process. (2019). Retrieved from
https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-
demand-equilibrium/market-equilibrium-tutorial/a/changes-in-equilibrium-price-and-
quantity-the-four-step-process-cnx
EconPort - Price Floors and Ceilings. (2006). Retrieved from Econport.org website:
http://www.econport.org/content/handbook/Equilibrium/Price-Controls.html
Production Decisions in Perfect Competition | Boundless Economics. (2019). Retrieved May
22, 2019, from Lumenlearning.com website:
https://courses.lumenlearning.com/boundless-economics/chapter/production-
decisions-in-perfect-competition/
Pettinger, T. (2017, March 29). Opportunity Cost Definition - Economics Help. Retrieved
May 22, 2019, from Economics Help website:
https://www.economicshelp.org/blog/2177/economics/opportunity-cost-definition/
SparkNotes: Elasticity: Elasticity. (2019). Retrieved from
https://www.sparknotes.com/economics/micro/elasticity/section1/