Supply and Demand

This document discusses the concept of supply and demand and its impact on various industries. It covers topics such as shifts in demand due to taxes and government policies, price elasticity of demand, and equilibrium price. The document also provides examples and calculations to illustrate these concepts. Find more study material and solved assignments on Desklib.

Supply and demand

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................3
Part 1................................................................................................................................................3
Part 2................................................................................................................................................5
Part 3................................................................................................................................................6
REFERENCES................................................................................................................................9

MAIN BODY
Part 1.
Q A.
a.)
Left shift in the demand curve due to tax imposed by Greece government on Air plane
tickets
Due to COVID-19 a tax on air plane tickets the price increases which in turn decrease
the demand of the air travel. Ticket charges and taxes put a brake on the air
connectivity and made air travel from and to Greece an expensive matter (Fazzari and
et.al, 2020).
b.)
Right shift in demand curve as new hotels were to open by the Greek government

Outbreak of COVID-19 had ruin the hospitality and travel industry around the globe. The
decision to open new hotels in specific geographical areas that are not affected by the
pandemic will increase the demand of those hotels and with it the price of the services
offered also increases (Bratić and et.al, 2021).
c.)
Shift in demand due to price cap on air plane tickets for specific destinations
As destination travel is an attractive affair. Imposing price cap on air tickets will increase
the demand of air travel for specific destinations keeping price at a constant level.

While, supply of the air tickets remain low due to limited number of availability of
resources to provide air travel services.
Q B.
a.)
Price-elastic demand
In the elastic demand a little change in the price leads to the bigger change in the
demand of the goods. Some of the goods are mentioned below:
 Cigars and cigarettes
 wine
 Fish
b.)
The price of the (Ba) is own-price elastic for short-period as the effect of the price
increase did obstruct the consumption of Ba but the price effect did not last-long and
people will continue consumption of Ba (Pupavac and et.al, 2020).
Part 2.
a.)
Salary of a worker is assumed to be €100. So, total salary of the workers increased with
the increase in the number of workers:
Number of
workers (L) Salary (€)
0
1 100
2 200
3 300
4 400
5 500
6 600
In this total demanded quantity is equal to quantity supplied.
Total Product
0
4

14
22
26
28
29
Total revenue for L=1 is given as €80. So equilibrium price is €80/4= €20.
b.)
Number of
workers
Total
Product
Total
Cost (TC)
Average
Total
Cost
(ATC)
Marginal
cost
(MC)
Total
reven
ue
(TR)
Margin
al
revenu
e (MR)
Avera
ge
revenu
e (AR) Profit
0 0 200 0 0 0 0 0 0
1 4 240 60 10 80 20 20 -160
2 14 250 17.86 1 280 20 20 30
3 22 258 11.73 69 440 20 20 182
4 26 262 10.08 1 520 20 20 258
5 28 400 14.29 69 560 20 20 160
6 29 401 13.83 1 580 20 20 179
c.)
The marginal cost for the firm is minimum at three levels i.e. when the production are
14, 26, 29 and the number of workers are 2, 4, 6 respectively. The workers produce at
the cost of €250 14 units which results in minimum marginal cost of 1 per unit. At the
same time with adding more workers and cost €262 or €401 the firm is able to achieve
minimum marginal cost (Chen and et.al, 2019).
d.)
The optimum quantity for the firm to produce is 26 units. The firm's profit at this level is
maximum i.e. €258. It is because the average total cost at this level is €10.08 and
marginal cost is also at minimum i.e. 1. Maximum quantity 26 units is produce by the 4
workers at cost of €262 which in result in high revenue at €520.

Part 3.
a.)
Qd = 18 – 3p and Qs = 3p
It is assumed that Qd = Qs. So, the equation will be:
18 – 3p = 3p
18 = 6p
p = 18/6
P = €3
by putting the value of p in the Qd equation we get,
Qd = 18 – 3p
Qd = 18 – 3*3
Qd = 18 – 9
Qd = 9 units.
by putting the value of p in the Qs equation we get,
Qs = 3p
Qs = 3*3
Qs = 9 units.
b.)
Qs = 9+12 units
by putting the value in supply function we get,
Qs = 3p
21 = 3p
p = 21 – 3
p = €18
The price of the product will decrease over time as at €18 the quantity supplied is 21
units, which is higher price as the average price per product will be €0.86.
c.)
Qd = 9+6 units
by putting the value in demand function we get,
Qd = 18 – 3p
15 = 18 – 3p

3p = 18 – 15
p = 3/3
p = €1
The price of the product will increase over time as at €1 the quantity supplied is 15
units, which is lowest price as the average price per product will be €0.067.
d.)
When p = 4
Qs = 3p
Qs = 3*4
Qs = 12 units and as the Qd = Qs. So, quantity demanded is also 12 units.
At the price level of €4 the demand is unitary elastic as the price level is at equilibrium
point (Price elasticity of demand, 2021). If the price level increases from equilibrium
price level the demand will decreases and with it supply is also decreases.

REFERENCES
Books and Journals
Bratić and et.al, 2021. Should I Stay or Should I Go? Tourists’ COVID-19 Risk
Perception and Vacation Behavior Shift. Sustainability, 13(6), p.3573.
Chen and et.al, 2019. Marginal cost of risk-based capital and risk-taking. Journal of
Banking & Finance, 103, pp.130-145.
Fazzari and et.al, 2020. Demand-led growth and accommodating supply. Cambridge
Journal of Economics, 44(3), pp.583-605.
Pupavac and et.al, 2020. Elasticity of demand in urban traffic case study: City of
Rijeka. Periodica Polytechnica Transportation Engineering, 48(2), pp.173-179.
Online
Price elasticity of demand, 2021. [Online]. Available through:
<https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_de
mand.html>