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Running head: PRINCIPLES OF ECONOMICS
Principles of economics
Name of the student:
Name of the University:
Author note

1PRINCIPLES OF ECONOMICS
Table of Contents
Answer 1:...................................................................................................................................2
Answer 2:...................................................................................................................................3
a:.............................................................................................................................................3
b:.............................................................................................................................................3
Answer 3:...................................................................................................................................4
Answer 4:...................................................................................................................................5
a:.............................................................................................................................................5
b:.............................................................................................................................................5
Answer 5:...................................................................................................................................6
a:.............................................................................................................................................6
b:.............................................................................................................................................6
Reference:..................................................................................................................................8

2PRINCIPLES OF ECONOMICS
Output of beef
D1
D0
S
Price of beef
P1
P0
1
Q0
1
Q1
1
Answer 1:
Price of the beef rises that means it will reduce the demand of the same as per the law
of demand, however, considering the given case it can be seen that the demand of the beef
has been increased. Rise in the demand with the rise in price inherently means that the
demand curve need to be upward, however it cannot be feasible1. There are various factors
that can lead to the given situation. for instance, with the rise in the income of the consumer,
now the people are able to pay more for the beef leading to shift of the negatively sloping
demand curve rightward, which will lead to rise in the price as well as the quantity
demanded. In other case, there is scope that price of the substitute products of the beef has
also been increased with the rise in the price of the beef making beef a cheaper substitute2.
thus, under the ceteris paribus situation, with the rise in the price, there will be fall in the
demand, and if the factors like income of the consumer as well price of the substitutes rise,
then it will rather lead to rise in the quantity demanded of the beef.
Figure 1: Supply and demand framework of beef
1 J Mokyr - The Journal of Economic History and undefined 1977, “Demand vs. Supply in the Industrial
Revolution,” Cambridge.Org, n.d.
2 JCB Cooper - OPEC Energy review and undefined 2003, “Price Elasticity of Demand for Crude Oil: Estimates
for 23 Countries,” Wiley Online Library, n.d.

3PRINCIPLES OF ECONOMICS
Source: (Created by Author)
Through the graphical representation of the phenomenon by the figure 1, it can be seen that,
as the price of the rises, the demand curve can also shift rightward due to the rise in the
income level or rise in the price of the substitutes. As the demand curve shift rightward from
the D0 to D1, it will shift the demand of the beef as well from Q0 to Q1 proving the stated
comment in the assignment wrong.
Answer 2:
a:
With the fall in the harvest of the wine grape in the France, there will fall in the
supply of the French wine in the state. Fall in the production of the French wine will
eventually lead to rise in the price of the same in the domestic market, which will cause fall
in the demand, allowing the foreign traders to enter into the market3. Poor condition of the
wine grapes harvest in the domestic economy, French wine will eventually loose market in
front of the market in the domestic region.
b:
Due to fall in the production of the wine grapes, there will be fall in the production,
which will lead to rise in the price. Considering this, to fulfil the market gap in production of
wine, Australian wine firm will export wines to France, which will increase the supply of the
wine in the French market4. Under this situation, price will eventually fall and the revenue for
the Australian firm will rise over the time with the rise in the market share of the Australian
wine firms.
Answer 3:
in order to answer the given question properly, it has to be assumed that the apple and
orange juice are substitute product, which means, with the rise in the consumption of the
3 V Ruttan and C Thirtle, The Role of Demand and Supply in the Generation and Diffusion of Technical Change,
2014.
4 Ruttan and Thirtle.

4PRINCIPLES OF ECONOMICS
E0
E1
Q0
1
Q1
1
Output of beef
D0
D1
S0
Price of beef
P1
P0
1
S1
P2
1
Q2
1
apple juice there will be fall in the consumption of the orange juice and vis-à-vis5. the same
principle is followed in the production as well as employment situation of the orange and
apple juice industry.
Figure 2: demand and supply framework of orange juice
Source:
Now considering the given information, fall in the price of the apple juice will
eventually enhance the demand of the same and on the other hand it will reduce the demand
of the orange juice6. If it is considered as per the figure 1, the initial equilibrium occurs at E0,
where the price of orange juice is 8 unit and the output is 70 unit, then the fall in the demand
will lead to shift of the demand curve of the orange juice from the D0 to D1. This shift will
eventually lead to fall in the price as well as the demand. Now, if the wage of the orange juice
workers has been increased, then it will shift the supply curve from S0 to S1 as depicted in
5 Tatiana Andreyeva, Michael W. Long, and Kelly D. Brownell, “The Impact of Food Prices on Consumption: A
Systematic Review of Research on the Price Elasticity of Demand for Food,” American Journal of Public
Health 100, no. 2 (February 2010): 216–22, https://doi.org/10.2105/AJPH.2008.151415.
6 review and 2003, “Price Elasticity of Demand for Crude Oil: Estimates for 23 Countries.”

5PRINCIPLES OF ECONOMICS
the figure 2. This second shift, will make the new equilibrium at 1’, where the price of the
orange juice will be lower at P2 and the quantity demanded will be higher at Q2.
Answer 4:
a:
As per the norm of the Australian government as they has decided pricing ceiling for
the taxi ride, it can be said that the Australian taxi drivers are consuming price inelastic in
demand. Which means, there will be no change in the demand of the taxi service, if the price
of the service is increased7. One of the basic things that has allowed the taxi drivers to think
like this is the share of people who prefer to get taxi rather than waling or travelling buses
taking advantage of the low price of the taxi service. As per the taxi drivers, if the market
remains same, then the overall revenue of them will fall eventually making them out of
money.
b:
Considering the thinking of the Australian taxi drivers it can be said that the thinking
is totally unrealistic. Demand of the taxi service is highly elastic in nature because as the
price increases, historically it has been observed that there will be fall in the demand in case
of Australia8. On the other hand, if the price fell, then it will allow the consumers to ride more
taxi. However, if the price is set by the government, then throughout the year, price will be
almost same, which will eventually aid the taxi drivers to save themselves from the loss.
7 L Robbins - Economic Science and Political Economy and undefined 1997, “On the Elasticity of Demand for
Income in Terms of Effort,” Springer, n.d.
8 M Babar et al., “The Development of Demand Elasticity Model for Demand Response in the Retail Market
Environment,” Ieeexplore.Ieee.Org, n.d.

6PRINCIPLES OF ECONOMICS
4.5
0
5
P
Q
5050
MC
ATC
Answer 5:
a:
Figure 3: monopolistically competitive firm
Source: (Created by Author)
Total profit = Total revenue – Total cost
= price * quantity – Average Total Cost * quantity
= 4.50 * 50 – 5 * 50
= 225 – 250
= - 25
From the above calculation it can be seen that the firm is facing loss of 25$.
b:
In order to gain normal profit the firm need to produce where the MC = MR

7PRINCIPLES OF ECONOMICS
Therefore, the firm need to charge more than 4.5$ and the output need to be more than
50.

8PRINCIPLES OF ECONOMICS
Reference:
Andreyeva, Tatiana, Michael W. Long, and Kelly D. Brownell. “The Impact of Food Prices
on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for
Food.” American Journal of Public Health 100, no. 2 (February 2010): 216–22.
https://doi.org/10.2105/AJPH.2008.151415.
Babar, M, PH Nguyen, V Cuk - PowerTech, 2015 IEEE, and undefined 2015. “The
Development of Demand Elasticity Model for Demand Response in the Retail Market
Environment.” Ieeexplore.Ieee.Org, n.d.
Economy, L Robbins - Economic Science and Political, and undefined 1997. “On the
Elasticity of Demand for Income in Terms of Effort.” Springer, n.d.
History, J Mokyr - The Journal of Economic, and undefined 1977. “Demand vs. Supply in the
Industrial Revolution.” Cambridge.Org, n.d.
review, JCB Cooper - OPEC Energy, and undefined 2003. “Price Elasticity of Demand for
Crude Oil: Estimates for 23 Countries.” Wiley Online Library, n.d.
Ruttan, V, and C Thirtle. The Role of Demand and Supply in the Generation and Diffusion of
Technical Change, 2014.