ECO100 Economics Assignment: Market Dynamics and Production Analysis

This ECO100 economics assignment provides detailed solutions to three problem-solving questions. It covers the production possibilities frontier (PPF) with a graphical representation of car and bicycle production in Newland, explaining how technology and trade can increase production. The assignment also analyzes market equilibrium using supply and demand functions, calculating consumer and producer surplus, and evaluating the impact of price changes. Furthermore, it discusses the effects of online video rentals on the DVD market and explores price elasticity concepts. The document includes relevant diagrams and numerical calculations to support the analysis. Desklib provides access to similar solved assignments and past papers for students.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

1ECONOMICS
Table of Contents
ANSWER 1................................................................................................................................2
Answer a)...............................................................................................................................2
Answer b)...............................................................................................................................3
Answer c)...............................................................................................................................4
ANSWER 2................................................................................................................................5
Answer a)...............................................................................................................................5
Answer b)...............................................................................................................................5
Answer c)...............................................................................................................................6
Answer d)...............................................................................................................................6
Answer f)................................................................................................................................8
ANSWER 3................................................................................................................................9
Answer a)...............................................................................................................................9
Answer b)...............................................................................................................................9
Answer c).............................................................................................................................10
Reference list............................................................................................................................11

2ECONOMICS
ANSWER 1
Answer a)
CARS
(000)
Bicycles
(000)
30 0
28 1
24 2
18 3
10 4
0 5

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0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
0
1000
2000
3000
4000
5000
6000
PPF
CARS
BICYCLES
Figure 1 Production capacity of Newland
Answer b)
The production possibility frontier is a kind of curve that is used to depict all the
maximum output possibilities of the two commodities. The production possibility frontier
known to assume that all the inputs are used in an efficient way. The factors which will
be affecting the production possibility frontier are labour, capital along with technology.
PPF can also be termed as the transformation curve. The PPF is usually known to indicate
the production possibilities of the commodities in this case the two commodities are the
bicycles and cars. By drawing the diagram it can be said that production of cars can only
be increased when the production of bicycles can be reduced. In this case the PPF is
known to measure the efficiency where two of the commodities can be produced together.
Therefore, it can be said that the production possibility curve will be used in measuring
the efficiency where two of the goods can be produced. The assumptions which can be
taken into account while graphing the production possibility curve the technology are

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known to be constant an resources are used efficiently and that there will be absence of a
choice between the two commodities. It is also assumed that there will be technical
efficiency of the resources, the economy has fixed resources and the technology is also
fixed.
The properties of PPF includes:
1. They are concave to the origin because of the increase in the opportunity cost.
2. Rise in the marginal rate of transformation. This happens because with the production
of the additional number of goods, more and more units of the other goods are need to
be sacrificed.
3. Downward sloping in nature as more amount of production of one good means
decline in the production of the other good.
4. Utilisation of resources will be optimum in nature. The points which will be lying in
the production possibility frontier will be associated with full employment of the
resources along with efficient utilisation of the available technology.
Answer c)
Newland can increase the production of both bicycles and cars through advanced
technology. It can only produce enough cars and bicycles when it will be having enough
advanced technology or the country can trade for high amount of goods,.

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ANSWER 2
Price Quantity Revenue
200 50 10000
250 45 11250
300 40 12000
350 35 12250
400 30 12000
Answer a)
When the price falls from $400 to $350 and then $350 to $300 a chip the total revenue
will be increasing or decreasing according to the quantities sold in the market. As from the
above table it can be seen that when the price of the chip is $400, the quantity sold in 40
unlike of $350 where the quantity sold in 35. So when the price of the chip decreases from
$400 to $350 with the quantity of chips sold increasing the total revenue will also increase
from $12000 to $12250. On the other hand when the price will be decreasing from $350 TO
$300. The total revenue will be decreasing from $12250 to $12000.
Answer b)
Price
Quantity
demanded
Total
Revenue
200 50 10000
250 45 11250
300 40 12000
350 35 12250
400 30 12000

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From the above table it can be said that the demand for chips is inelastic in nature.
Also with the help of total revenue test it can be said that the demand in inelastic in nature
since a rise in price lead to rise in the total revenue and when there is decrease in price it have
less amount of total revenue.
QD = 100-5P
QS = 5P
For equilibrium in the market the demand should be equal to the supply of the product.
QD =QS
100-5P =5P
100=10P
P=10
Answer c)
Therefore putting the value of P in QD and QS, the equilibrium quantity will be 50
and the price will be 10.
Answer d)
As the intercept of the demand curve was found to be 20. Therefore calculating the consumer
surplus will be CS= ½*(20-10)*50
=1/2*10*50 = 250
Therefore, it can be said that the value of the consumer surplus will be 250.
The producer surplus will be calculated in the same way where
PS=½*(20-10)*50

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=1/2*10*50 = 250
The producer surplus will be 250 +250 = 500
Answer e)
Cosumer surplus= 1
2 × ( 20−15 ) ×25
¿ 1
2 ×5 ×25
¿ 62.5
The producer surplus will be therefore
10*25+1/2*5*25
= 250+ 62.5
=312.5
Therefore, the deadweight loss will be
= 2*1/2*5*25

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=25*5 =125
The consumer surplus will be
250+62.5 = 312.5
The new producer surplus
= 62.5
Deadweight loss
=2*1/2*5*25 = 125
Answer f)
Figure 2 New equilibrium

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P
Q
S
D
D1
ANSWER 3
Answer a)
Figure 3Reduction of demand of DVDs
From the above diagram it can be said that with the introduction of the online video rentals
and streaming, the demand for the DVDs will therefore decline. When the streaming and the
video rentals have increased, the demand for the DVDs will be going down as people will
avoid going to stores and buy DVDs.
Answer b)
Optus online movie rentals here in this case are said to be more price elastic when
compared demand for online movie rentals. The reason for this is that Optus will be having a
competitive market compared to the general market online movie rentals. Price elasticity of

10ECONOMICS
demand is the measure used in economics for showing the responsiveness or elasticity of the
quantity demanded of a good or service.
Answer c)
The cross price elasticity of goods is the responsiveness of the quantity demanded for
the good to a change in the price of the good. As the online movie rentals and the in store
movie rentals are substitutes it will be having a positive cross elasticity of demand. The
reason for this is that with the increase online movie rentals and in store movie rentals will
decline.

11ECONOMICS
Reference list
Bauer, M.J.R., 2018. Principles of microeconomics.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Cowen, T. and Tabarrok, A., 2015. Modern principles of microeconomics. Macmillan
International Higher Education.
Fine, B., 2016. Microeconomics. University of Chicago Press Economics Books.
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University
Press.
Iossa, E. and Martimort, D., 2015. The simple microeconomics of public‐private partnerships.
Journal of Public Economic Theory, 17(1), pp.4-48.
McKenzie, R.B. and Lee, D.R., 2016. Microeconomics for MBAs: The economic way of
thinking for managers. Cambridge University Press.
Microeconomics, E.E., 2015. KELVIN WONG. Cell, 808, pp.386-8406.
Tahir, S., Ghazali, A. and Agil, S.O.S. eds., 2017. Readings in Microeconomics: An Islamic
Perspective. In The Name of Allah, The most Beneficent, The most Merciful, p.104.