Microeconomics

This report analyses various real world scenarios based on product markets with the help of some fundamental concepts of microeconomics. Read about production possibility frontier, demand and supply, market equilibrium, inelastic demand, and utility.

Running head: MICROECONOMICS
Microeconomics
Name of the student
Name of the university
Author Note

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Table of Contents
Introduction:..............................................................................................................................2
2. Analysis...................................................................................................................................3
2.1 Analysis 1:.........................................................................................................................3
(Topic: Production possibility frontier and the opportunity cost).........................................3
2.2 Analysis 2:.........................................................................................................................5
(Topic: Demand and supply)..................................................................................................5
2.3 Analysis 3:.........................................................................................................................7
(Topic: Market equilibrium)...................................................................................................7
2.4 Analysis 4:.............................................................................................................................9
(Topic: Inelastic demand and increased total revenue)........................................................9
2.5 Analysis 5:.......................................................................................................................11
(Topic: Utility).......................................................................................................................11
Conclusion:...............................................................................................................................13
References:...............................................................................................................................14

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Introduction:
Product market can be referred as an economic process through which producers
sell their final products to buyers. This market structure can be described with the help of
real world scenario. Each company has supplied their products in market based on market
demand. On the other side, consumers demand those products from which they can get
utilities. Thus, each business activities can be described with the help of some basic
microeconomics concepts, which are, production possibility frontier, demand, supply,
market equilibrium and utility. Thus, this report has focused some newspaper and magazine
articles that have discussed about the real market of products.

Thermal energy
Renewable energyO
A
B
C D
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2. Analysis
2.1 Analysis 1:
(Topic: Production possibility frontier and the opportunity cost)
Source:
https://www.smh.com.au/business/the-economy/falling-renewable-costs-chilling-for-
fossil-fuels-20180329-p4z6vb.html
Summary:
In Australia, decreasing costs of renewable energy and batteries have threatened
various new coal power stations of this country. According to the Sydney Morning Herald,
prices of wind and solar generators have become cheaper compare to the powered stations
of gas-fired and coal (Latimer, 2018). As a result, one of the energy economists has stated
that the country is changing its production pattern in electricity sector. Hence, building of
new gas and coal stations are becoming economically insignificant.
Analysis:
The opportunity cost implies a value, which a producer can receive by choosing the
second best alternatives through allocating scarce resources. On the other side, production
possibility frontier (PPF) shows the maximum combinations of two outputs that a country
can receive by using its all resources (Ruijs et al., 2017). With same technology, labour and
capital, Australia can produce either thermal energy or renewable energy. The possible
trade-off can be shown with the help of a suitable diagram.

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Figure 1: Production possibility frontier
Source: (created by author)
The figure 1 has represented a production possibility frontier of Australia for
producing energies with limited resources. According to this figure, the country needs to
scarify AB amount of thermal energy to produce CD amount of renewable energy. Hence,
the opportunity cost, which the country has sacrificed, is AB.

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2.2 Analysis 2:
(Topic: Demand and supply)
Source:
https://www.forbesmiddleeast.com/en/u-a-e-s-coffee-market-is-brewing-thanks-to-robust-
consumer-demand/
Summary:
The coffee market in the UAE has increased significantly due to the increasing
demand for customers. In Dubai, major coffee chains have set up their outlets. The city,
being one of the largest business hubs, has huge number of coffee buyers. In 2016, the
number of coffee outlets in the U.A.E has remained around 1151. Moreover, per capita
expenditure of consumers on coffee and tea has become to $90.6 in the same year (Meetu
Bhasin, 2018). Hence, Dubai is expecting to become a large coffee trade destination for
coming years. Dubai has possessed various economical activities, as it is the capital of U.A.E.
Moreover, this city has earned huge significance for shopping. Those factors have positively
influenced the demand for coffee to increase further.
Analysis:
This increasing demand for coffee can be analysed with the help of a demand curve.
Demand for a particular product chiefly depends on its price. However, other factors can
also influence this demand to shift further (Foster, Haltiwanger & Syverson, 2016). In this
context, demand for coffee has increased because of the economical environment of Dubai,
while price has remained at its initial position.

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Price of coffee
Quantity demanded for coffee
O
P
Q1 Q2
D1
D2
Figure 2: shift in demand curve of coffee
Source: (created by author)
In figure 2, the initial demand curve of coffee is represented by D1 line. At, price
level P, the equilibrium amount of coffee has remained at Q1. However, after increase in
demand due to some external factors, this curve has shifted to the right. Hence, at same
price level, the demand for coffee in Dubai has increased by Q1Q2 amount.

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2.3 Analysis 3:
(Topic: Market equilibrium)
Source:
https://www.theguardian.com/business/grogonomics/2018/mar/06/australian-housing-
stuck-between-a-rock-and-a-hard-place
Summary:
Housing affordability in Australia has become one of the chief issues among the
policy makers of the government. According to this newspaper article, demand for houses
has depended mostly on the income of consumers. Rich people are demanding more houses
compare to others and this in turn has increased the housing prices in this country.
Consequently, median house prices in Sydney has remained 5.8 time more compare to the
median household income of this city in 2001. However, this gap has increased significantly
and in 2018, median house price has become 8.3 times more compare to the city’s median
household income (Jericho, 2018).
Analysis:
Market demand curve and market supply curve help to determine the market
equilibrium of any product. The equilibrium price occurs when these two curves equate with
each other. Moreover, the equilibrium amount of output can also be determined from here
(Tham & Luo, 2015). In Sydney, housing supply has remained at a stable position. However,
the market demand for this product has increased significantly due to some external factors,
over the years. Consequently, this has led the market price of houses to increase further.

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O
P1
P0
Q0 Q1
D0
D1
S
Amount of houses
Figure 3: Market equilibrium of houses in Sydney
Source: (created by author)
According to figure 3, the initial demand curve of houses is D0 while the stable
supply curve is S. At this situation, the housing price in Sydney has remained at P1 and the
corresponding quantity demanded has remained at Q0. After increase in demand for
houses, the new demand curve has become D1 while supply has remained at its initial level.
At this situation, the market price of houses has increased by P0P1 unit for extra Q0Q1
amount of houses.
Housing prices

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Price of tobacco
Quantity demanded for tobacco
O
P1
Q1 Q0
D
P0
2.4 Analysis 4:
(Topic: Inelastic demand and increased total revenue)
Source:
https://dailynewsegypt.com/2018/04/16/egypt-targets-egp-166-38bn-increase-total-tax-
revenues-fy-2018-19/
Summary:
In Egypt, tax revenues on fiscal year 2018/19 have targeted to increase by EGP
166.38 bn and have registered at EGP 770.28 bn. One of the chief sources of tax revenue is
the income tax. In addition to this, the country has also aimed to increase its revenues from
taxes on tobacco including VAT worth 7.072 bn (dailynewsegypt.com, 2018).
Analysis:
Tobacco is considered as inelastic product due to its nature of demand in market. By
the term inelastic, it can be said that, the demand for tobacco cannot decrease significantly
after increasing the price of this product (Gray et al., 2017). The government may impose
higher amount of taxes on this product. This in turn increases the price of tobacco.
However, market demand may remain same and consequently, the government can earn
higher amount of revenue from this source.
Figure 4: Inelastic demand curve for tobacco
Source: (created by author)
The above figure has represented an inelastic demand curve for tobacco by the line
D. Due to this nature; the slope of this curve is comparatively steeper than normal demand

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curves of other products. After imposition of tax, price of tobacco has increased by P0P1
unit and consequently, quantity demanded has increased by Q1Q0 unit. However, the
amount of price change is higher compare to the amount quantity change. From this, it can
be said that the government may earn higher revenue by imposing higher amount of taxes
on tobacco.

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2.5 Analysis 5:
(Topic: Utility)
Source:
https://www.theguardian.com/environment/2018/mar/29/australias-emissions-rise-again-
in-2017-putting-paris-targets-in-doubt
Summary:
The greenhouse gas emissions in Australia have increased significantly in 2017.
However, the country has decreased its production of thermal power and has started to
generate renewable energy. In this year, the country’s total greenhouse gas emissions have
become to 556.11m tonnes while in 2016 the amount has remained at 7.21 m tonnes.
Emissions have come from various sectors, like electricity, transport, agriculture and so on.
While energy sector has decreased the amount of greenhouse gas emissions, transport
sector along with fugitive emissions have generated huge amount of green house gases.
Analysis:
When people get benefits by consuming any product, that it can be said that this
particular product has utility. However, by increasing the consumption of this product by
large number, this level of utility can be decreased (Zulkafli & Kopanos, 2017). Hence, from
the above discussion, it can be stated that the utility level of Australia has decreased
significantly through using more transports. With the help of transport, people can move
easily and consequently have received higher utility from it. However, excess use of
transports can increase the greenhouse gases and this in turn can decrease the amount of
total utility of those people.

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Total utility
O
Number of cars
Figure 5: Total utility of people by using large number of transports
Source: (created by author)
Figure 5 has represented a total utility curve of Australian people, based on the
number of transport consumption. According to this figure, people get higher benefits from
using transports and this lead the total utility curve to increase further. However, excess use
of transport may cause emissions of greenhouse gases. For this, total utility may start to
decline if the utility received from gas emissions can offset the service received from
transportation.

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Conclusion:
Hence, this report has analysed various real world scenario, based on product
markets, with the help of some fundamental concepts of microeconomics. For doing so, this
report has analysed energy sector of Australia for production possibility frontier, coffee
market in Dubai for demand and supply concepts, housing market in Sydney for market
equilibrium,, tax on tobacco in Egypt for inelastic demand and impact of transports of
Australia for discussing utility.
According to this project, it can be said that economic concepts have close
relations with real market scenario. Each activity of product industry can be described with
the help of micro-economical concepts.

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References:
Egypt targets EGP 166.38bn increase in total tax revenues in FY 2018/19 - Daily News Egypt.
(2018). Daily News Egypt. Retrieved 24 April 2018, from
https://dailynewsegypt.com/2018/04/16/egypt-targets-egp-166-38bn-increase-
total-tax-revenues-fy-2018-19/
Foster, L., Haltiwanger, J., & Syverson, C. (2016). The slow growth of new plants: Learning
about demand?. Economica, 83(329), 91-129.
Gray, J. C., Amlung, M. T., Owens, M., Acker, J., Brown, C. L., Brody, G. H., ... & MacKillop, J.
(2017). The neuroeconomics of tobacco demand: an initial investigation of the neural
correlates of cigarette cost-benefit decision making in male smokers. Scientific
Reports, 7, 41930.
https://www.theguardian.com/environment/2018/mar/29/australias-emissions-rise-again-
in-2017-putting-paris-targets-in-doubt
Jericho, G. (2018). Australian housing stuck between a rock and a hard place | Greg
Jericho. the Guardian. Retrieved 24 April 2018, from
https://www.theguardian.com/business/grogonomics/2018/mar/06/australian-
housing-stuck-between-a-rock-and-a-hard-place
Latimer, C. (2018). Falling renewable costs 'chilling' for fossil fuels. The Sydney Morning
Herald. Retrieved 24 April 2018, from https://www.smh.com.au/business/the-
economy/falling-renewable-costs-chilling-for-fossil-fuels-20180329-p4z6vb.html
Meetu Bhasin, C. (2018). U.A.E.'s Coffee Market Is Brewing Thanks To Robust Consumer
Demand - Forbes Middle East. Forbes Middle East. Retrieved 24 April 2018, from
https://www.forbesmiddleeast.com/en/u-a-e-s-coffee-market-is-brewing-thanks-to-
robust-consumer-demand/
Ruijs, A., Kortelainen, M., Wossink, A., Schulp, C. J. E., & Alkemade, R. (2017). Opportunity
cost estimation of ecosystem services. Environmental and Resource
Economics, 66(4), 717-747.
Slezak, M. (2018). Australia's emissions rise again in 2017, putting Paris targets in doubt. the
Guardian. Retrieved 24 April 2018, from

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Tham, C. K., & Luo, T. (2015). Quality of contributed service and market equilibrium for
participatory sensing. IEEE Transactions on Mobile Computing, 14(4), 829-842.
Zulkafli, N. I., & Kopanos, G. M. (2017, May). Simultaneous planning of production and utility
systems under performance degradation. In Advanced Control of Industrial Processes
(AdCONIP), 2017 6th International Symposium on (pp. 113-118). IEEE.