Price and Market

Explore the concepts of demand, supply, equilibrium, market failure, elasticities, and indirect taxes in the context of price and market. Understand the impact of fungal disease on the market for natural rubber, synthetic rubber, and car tires. Learn about the effects of COVID-19 on the car market. Analyze the imposition of taxes on product Y and its impact on consumer and producer surplus. Discover the factors influencing the market for pesticides and the role of government in combating market failure.

PRICE AND MARKET

Table of Contents
PART 1: DEAMND, SUPPLY AND EQUILIBRIUM..................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................3
Question 3....................................................................................................................................4
PART 2 – MARKET FAILURE, ELASTICITIES AND INDIRECT TAXES..............................5
Question 1....................................................................................................................................5
Question 2....................................................................................................................................8
REFERENCES................................................................................................................................1

PART 1: DEAMND, SUPPLY AND EQUILIBRIUM
Question 1
(i) Option c. The determinant here is the reduction in the number of goat herds that ultimately
reduce availability of goat milk soap.
(ii) Option a. Reduction in the availability of pasta acts as key determinant here because supply
of pasta will decrease and due to increased price of pasta, the demand for pasta sauce will also
reduce.
(iii) Option d. Determinant here is increased risk of developing cancer and this will lead to an
increase in the demand of hats and thus supply will also increase.
Question 2
a.
i. Quantity Demanded = 50
Quantity Supplied = 30
b.
i. Yes, there is both excess demand and excess supply.
ii. Excess Demand: Qd – Qs
At $1.5: 50 – 30 = 20
At $1: 60 – 20 = 40
Excess Supply: Qs - Qd
At price $4: 80 – 0 = 80
At $3.5: 70 – 10 = 60
At $3: 60 – 20 = 40
At $2.5: 50 – 30 = 20
c.
i. At price $2 when quantity demand and quantity supplied both will be equal at 40 units.
d.
i. Since the equilibrium price is $2 and the cost is also $2, it will be a situation of no profit and
no loss and the profit for company will be $0. This is also in consistency with the concept of
equilibrium quantity.
e.

This relationship indicates that both the breads are substitute goods in nature because the
increase in price of Noxious White bread leads to increase in the quantity demanded of Artisan
Sourdough bread.
f.
Artisan Sourdough is a normal good and Noxious White is an inferior good. This is because as
per the income elasticity, when the income of a consumer increases, their demand for normal
goods increases and the demand for inferior goods decreases consequently.
Question 3.
(A) Effect of fungal disease on market for natural rubber
The effect of fungal disease on market for natural rubber can be understood to be widely
impacting in downfall of demand as there is high downfall of supply range also, where it can
be analysed that when products prices are increased it becomes less attractive for people and
business. Fungal disease has been impacting widely natural rubber and market scenarios,
where it brings out wide range of other options for market such as synthetic rubber for
gaining scope of ranging demand. It can be understood that law of demand and supply when
applied at analysis explains with reduced demand of natural rubber, there is reduction in
industry factors demands also where people wish to opt for other variable options
(Palley,2019).
(B) Effect on the market for synthetic rubber
The effect on market for synthetic rubber due to fungal disease variably impacting
Demand of natural rubber drastically can be analysed to be widely high as industry domains
business and people are opting for synthetic rubber. Impact on equilibrium price can be also
analysed to be stably growing on lower paradigms where businesses are going up for
variable other option of synthetic rubber. It can be analysed within conditional aspects of
economics law of demand and supply, where low price generates high demand and supply
simultaneously.
(C) Effect on market for cars tyres
The effect on market for car tyres due to effect of fungal disease reducing demand structure
of market supply for natural rubber and giving economical push to demand for synthetic
rubber, has been also impacting car tyres industry to rise the price equilibrium. It can be

analysed that car tyres industry has been seeing high preferences for using synthetic rubber
in usage of larger affordable costing which as law of demand and supply highly functional
focused on stronger effective market domains.
(D) Impact on car markets due to COVID: With advent of Covid, people have been widely
worried about jobs and future incomes where analysis discussed in above factor of impact
on car tyres industry, market for cars is likely to witness downfall as the rising cost of
product reduces functional demand as well. It can be understood that companies are likely to
cut down on costings within manufacturing for attractive pricing strategies. The shift in
demand and supply curve will have major impact on markets for car market where
businesses have to head on strategic prices structure, optimally plan market reach by
forming evocative focus on stabilizing demand curve in favour for business horizons
(Baldwin and Weder di Mauro, 2020).
PART 2 – MARKET FAILURE, ELASTICITIES AND INDIRECT TAXES
Question 1
i.
Before tax imposition, demand and supply of product Y:
Qd = 100 – 2P
Qs = -20 + 4P
If demand and supply are assumed to be at equilibrium, then Qd = Qs;
100 – 2P = -20 + 4P
120 = 6P
P = $20
Hence, quantity is:
Qd = 100 – 2(20)
Qd = 60
Qs = -20 + 4(20)
Qs = 60 P D
S

Demand and supply for product Y after imposing tax:
Qd = 100 – 2P
Qs = -20 + 4P
Price (after tax) = $24
Therefore, demand and supply can be calculated as,
Qd = 100 – 2P
Qd = 100 – 2(24)
Qd = 52
Qs = -20 + 4P
Qs = -20 + 4(24)
Qs = 76
ii.
Per unit tax = (24 – 20) / 20 = 20%
iii.
Consumer surplus: 20 – 24 = -$4
This indicates that now consumers are paying more due to imposition of taxes.
Q
60
60 E
P
Q
50
60
70
706050
76
52
D
S

Producer Surplus: 24*52 – 24*76 = -576
This indicates the producers are suffering losses rather than surplus due to decline in quantity
demanded.
Deadweight Loss: 4*-8 = -32
This indicates that in comparison to the price of the products and the quantity that is being
demanded.
iv.
Arc elasticity of demand = [(Qd2 – Qd1) / midpoint Qd] ÷ [(P2 – P1) / midpoint P]
Midpoint Qd = (Qd1+ Qd2) / 2 = (60 + 52) / 2 = 56
Midpoint P = (P1+ P2) / 2 = (20 + 24) / 2 = 22
Arc Elasticity = [(52 – 60)/ 56] / [(24 – 20) / 22]
Arc Elasticity = -0.14 / 0.18
Arc Elasticity = -0.77
This indicates that price elasticity of demand is elastic in nature i.e. demand is changing with
higher proportion as compared to price and since there is negative sign, it further indicates that
demand is falling i.e. declining.
v.
Burden of tax basically indicates the division of taxes normally between buyers and sellers or
producers and final consumers. In the current scenario, it can be calculated as follows:
Consumer burden: 52 * ($24 - $ 20) = $208
Producer Burden: 52 * ($20 - $15) = $260 [Assuming that now price is established at $15]
As the elasticity which is negative indicates that price elasticity is elastic in nature, similarly the
tax burden has also been calculated based on that derivation only. If the demand has been
inelastic, then the focus would have been directly imposed on the consumer making them bear a
higher percentage of tax burden.
vi.
The demand for product Y will decline because due to availability of less disposable income, the
consumer will shift to those inferior goods which are available cheaply and since this good has
been imposed tax upon, its prices are generally higher. Therefore, the demand for product Y will
decline.
vii.

Government should increase direct taxes because when the consumer will not be capable of
buying that product, then its demand will automatically decline leading to a fall in its production
as well.
Question 2
(1)Market price and quantity of pesticide produced are meeting at equilibrium when price is 75
and quantity is 30, where social optimal price and quantity enables us to analyse that at low price
structure there is high demand within market structure.
(2)Optimal price for goods and service is equal to the marginal where social cost of consumption
is analytically analysed, which will be putting stable price range for consumers. The market
failure is economic concept where inefficient distribution of goods and services in free market
functional scenarios where external business domains have high specialization to be factored on
growth objectives.
(3)
(4) Allocation of resources are analysed to be widely impacting demand, supply curve where
with effective demand there is technical shift on overall revenue from best pricing strategies.
(5) Government to combat market failure has to form inequities through taxation, subsidies
where economical concepts such as promotion of general economic fairness shall be worked on

for active innovative price structure. Pesticides market scenario is widely growing on new
horizons where economical demands and supply equilibrium when strongly focused on, brings
higher growth in operational keen growth among business domains. Industry has been witnessing
large focus on keeping stable price structure and also be focused on economical concept to keep
productive demand (Varshavskaya and Kotyrlo, 2019).

REFERENCES
Books and journals
Baldwin, R. and Weder di Mauro, B., 2020. Economics in the Time of COVID-19.
Varshavskaya, E. and Kotyrlo, E., 2019. Graduates in engineering and economics: Between
demand and supply. Educational Studies, (2), pp.98-128.
Palley, T., 2019. The economics of the super‐multiplier: A comprehensive treatment with labor
markets. Metroeconomica, 70(2), pp.325-340.
Online
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