Economics Study Material and Solved Assignments

ECONOMICS
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ECONOMICS
PART A
Question 1
(a)The given demand and supply curves for Anna’s blueberry pies have been drawn using
Excel resulting in the following graph.
(b)The equilibrium for the blueberry pies would be represented by the point where there is
intersection of the demand and supply curves (Arnold, 2017). Based on the graph shown
above, it is evident the equilibrium price is $5 per pie while the equilibrium quantity is
24,000 pies.
(c)Based on the given information, it is evident that there has been an increase in the demand
for Anna’s pies by 4,000 units. As a result, the original demand curve is adjusted by
adding 4,000 units for each price level (Mankiw, 2014). The revised demand curve and the
new equilibrium position is indicated as follows.

ECONOMICS
(d)The equilibrium for the blueberry pies would be represented by the point where there is
intersection of the demand and supply curves. Based on the graph shown above, it is
evident the equilibrium price is $5.5 per pie while the equilibrium quantity is 26,000 pies.
It is evident that both the equilibrium price and equilibrium quantity have increased
(Arnold, 2017).
Question 2
It is known that the equilibrium price without rental control is $ 1,200 per month and the
equilibrium quantity is 4,000 rental dwellings. However, rental control has been imposed by
the government resulting in the price ceiling of $ 1,000 being applicable. The effect of this
move can be illustrated using the following diagram.

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It is evident from the above diagram that on account of imposition of rental control, there is a
demand supply mismatch that has been created. This is because the demand at $ 1,000
represented by QD is greater than the corresponding supply of rental dwellings at $ 1,000
represented by Qs. This clearly highlights that this move by the government would be
counter-productive as it would lead to the worsening of house crisis owing to further shortage
of rental dwellings (Mankiw, 2014). As a result, the government should not impose rental
control especially in the long term and allow the free market forces to operate. The
government should instead focus on increasing the supply of low cost housing or providing
incentives to first time home buyers for ensuring that rent remains under control (Arnold,
2017).
Question 3
The requisite market structure for fast good restaurants such as McDonalds, KFC would be
monopolistic competition. This is because this particular market structure tends to most
closely resemble the various features of the fast food restaurants. One particular feature of
monopolistic competition is that there are multiple sellers in the industry. This is the case
with fast food restaurants considering that there are a significant number of players such as
KFC, McDonalds, Hungry Jack, Pizza Hut, Burger King which are offering competing
products to essentially the same target customers (Mankiw, 2014).
An additional feature of monopolistic competition is that the entry and exit barriers tend to be
low. This is true for the fast food players since it is not very difficult to enter or exit
considering that the capital expenditure involved in opening the store is not very high.
Further, on an ongoing basis, the variable costs are quite dominant and therefore in case of