Economics Assignment: Market Analysis, Elasticity, and Unemployment

This economics assignment provides a comprehensive analysis of various economic concepts. Section A focuses on market equilibrium, elasticity, and the impact of changes in supply. Section B delves into market structures, specifically perfect competition, and analyzes the effects of supply and demand shifts. Section C examines price elasticity of demand, its implications for revenue, and discusses structural unemployment and inflationary gaps. The assignment includes calculations, graphical representations, and explanations of key economic principles such as scarcity, opportunity cost, and profit maximization. The student demonstrates understanding of these concepts by applying them to real-world scenarios and providing clear, concise answers supported by economic theory and relevant references.

Running head: INTRODUCTION TO ECONOMICS
Introduction to Economics
Name of the Student
Name of the University
Course ID

1INTRODUCTION TO ECONOMICS
Table of Contents
Section A.........................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................4
Question 3....................................................................................................................................5
Question 4....................................................................................................................................6
Section B..........................................................................................................................................6
Question 1....................................................................................................................................6
Question 2....................................................................................................................................8
Section C........................................................................................................................................11
Question 2..................................................................................................................................11
Question 4..................................................................................................................................12
Question 5..................................................................................................................................14
References......................................................................................................................................17

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Section A
Question 1
Market demand for smart watches is given as
Qd=75,000−10 P
Market supply for smart watches is given as
Qs=40 P−22,000
a)
Equilibrium occurs where market demand and market supply matches
Qd=Qs
¿ , 75,000−10 P=40 P−22,000
¿ , 40 P+10 P=75,000+22,000
¿ , 50 P=96,000
¿ , P= 92,000
50
¿ , P=1940
Q=75,000−10 P
¿ 75,000− (10 × 1940 )
¿ 75,000−19400
¿ 55600

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Equilibrium price = $1940
Equilibrium quantity = 55600
b)
i)
The new market supply curve is
Qs=40 P−21,000
At price = $1940, the new market supply can be determined as
Qs=40 P−21,000
¿ ( 40 × 1940 ) −21,000
¿ 77,600−21,000
¿ 56,600
Because of the decrease in production cost market supply of smart watches increase from 55600
to 56600. Consequently, supply curve of smart watches shifts to the right raising available
quantity of smart watches in equilibrium and lower equilibrium price of smart watches (Pindyck
& Rubinfeld, 2015).

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ii)
Figure 1: Market for smart watches
Question 2
a)
Scarcity refers to the fundamental economic problem indicating the gap between mite
resources and unlimited wants (Nguyen & Wait, 2015). Because of scarcity people have to make
decision regarding efficient allocation of scarce resources for satisfying basic needs.
Jason faces a scarcity situation when deciding whether he would work overtime or not.
Jason can spend his time either by working overtime or by watching drama. Since he has limited
time, he has to make a choice between watching drama and doing overtime in the coffee shop.
The situation is same as the situation experience due to scarcity.

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b)
Opportunity cost in economics is defined as the cost of sacrificing the next best
alternative for making a decision (Kreps, 2019). It is the benefit that an individual forgoes for
selecting one alternative over another.
If Jason chooses to watch drama his time cost is the time that Jason spent for watching
the drama. The money cost of Jason is price of the ticket for drama.
c)
Jason supervisor could offer an additional higher payment to Jason to encourage him to
work overtime. If the additional payment is sufficiently high then only Jason would sacrifice the
satisfaction from watching movie and agree to do overtime (Cowell, 2018).
Question 3
a)
i)” What to produce”
ii)” For whom to produce”
iii)” How to produce”
b)
i) Positive statement
ii) Normative statement

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Question 4
a)
Peter operates in the short run. In the production process short run refers to the period
during which at least one of the factor inputs remain fixed (Baumol & Blinder, 2015). For the
apple firm the fixed factors are rented farm and equipment. For this factor Peter has to pay $7000
a week irrespective of output level. The variable factor here is workers. Peter can employ
varying amount of workers yielding a different level of output. Because of existence of fixed
factor of production, it can be said that Peter operates his apple farm in the short run situation.
b)
Section B
Question 1
a)

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BW shop is operating in a perfectly competitive market. From the given information
about revenue and output, price of the firm is obtained as $10 at all output level. Since price is
fixed and equals marginal revenue similar to perfectly competitive market, the market structure
can be identified as perfectly competitive market. In this form of market, there are large number
of buyers and sellers and the sellers sell homogenous product (Cowen & Tabarrok, 2015).
Because of a significantly large number of buyers and sellers, each player has very little share in
the market and therefore cannot influence market price.
b)
The profit maximization rule in a competitive market suggests that profit is maximized
when price equals marginal cost. This occurs corresponding to an output level of 25 and that of
the price level of $10. At this price and output level, total revenue is $250 and total cost is $270.
Since, total cost exceeds total revenue firm incurs a loss of ($270-$250) = $20.
c)

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A firm should shut down its operation when price is below the average variable cost
(Mochrie, 2015). At the profit maximizing level of price and output average variable cost $7.2.
Sine price is above the average variable cost the firm should not shut down its operation in the
long run. However, if the loss continues in the long run, then the firm should leave the industry.
d)
Figure 2: Market-Firm diagram for competitive market
Question 2
a)
As a result of 5G network, tutorial centres are able to offer a wider choice of course and a
more flexible teaching schedule. The increased flexibility and variety helps the tutorial centres to
increase availability of English tutorial courses. The online teaching and learning programs

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therefore increase supply of English tutorial courses. The supply curve of English tutorial
courses will shift to the right (Kolmar, 2017). Given the demand, increase in supply of English
tutorial course lower equilibrium price while increases equilibrium quantity of English tutorial
courses.
b)
The announcement of subsidy offering of $2,500 to all kindergarten, primary and
secondary students, increases affordability of parents for affording English tutorial courses for
their children. This increases demand for English tutorial courses and shifts the demand curve to
the right. As a result of demand increase equilibrium price and equilibrium quantity of English
tutorial courses increase.
c)
As discussed above the information in News 1 increases supply of English tutorial
courses and News 2 increases demand of English tutorial courses. Now, if both occurs at the
same time then there are different possible impact on equilibrium price and equilibrium quantity
depending on magnitude of demand and supply change (Fine, 2016). The two possible cases are
discussed below
Case I
If increase in demand for English tutorial courses is greater than increase in supply of
courses, then equilibrium price and equilibrium quantity of English tutorial courses increases.
This is shown in the figure below.

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Figure 3: Demand increases more than supply
Case II
If increase in supply for English tutorial courses is greater than increase in demand of
courses, then equilibrium price decreases while equilibrium quantity of English tutorial courses
increases. This is shown in the figure below.
Figure 4: Supply increases more than demand

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Section C
Question 2
a)
Price elasticity of demand= Percentage change∈Quantity demand
Percentage change∈Price
¿
Q2−Q1
Q1+ Q2
2
× 100
P2−P1
P1+ P2
2
× 100
¿ Q2−Q1
P2−P1
× P1+ P2
Q1+ Q2
¿ 3500−4000
14−10 × 14+10
4000+3500
¿ −500
4 × 24
7500
¿−125× 0.0032
¿−0.40
b)
i) The estimated price elasticity of demand is less than 1 indicating a relatively inelastic demand.
Since, demand is relatively price inelastic Sweet Ltd should increase price from $10 to $14 to
increase revenue (McKenzie & Lee, 2016). Revenue increases as proportionate decrease in

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quantity demand for Sweet Ltd is less than proportionate increase in price resulting in an
increase in revenue.
ii)
Figure 5: Inelastic demand and Revenue
In the above figure, DD shows the inelastic demand curve for Sweet Ltd. At price $10,
quantity of chocolate bar is 4000. Associated revenue is shown by the area odef. Now, when the
company increase price from $10 to $14, the quantity of chocolate bar sold decreases to 3500.
Revenue of the company now equals the area aboc. Area aboc is greater than the area odef
indicating a gain in revenue following a price increase.
Question 4
a)

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Unemployment rate= Number of unemployed person
Total labor force × 100
¿ Number of Unemployed
Employed+Unemployed ×100
¿ 338,660
3,226,180+338,660 ×100
¿ 338,660
3,564,840 ×100
¿ 0.0950 0.1
Labor force participation rate= Labor force
Total population aged 15 years∧above × 100
¿ Employed +Unemployed
Total population−Population less than15 years of age × 100
¿ 3,226,180+338,660
5,916,000−960,000 × 100
¿ 3,564,840
4956000 ×100
¿ 71.9 %
In 2019, the country is facing unemployment mainly due to fierce international competition and
severe job relocation out of the country. This type of unemployment created due to structural
change within the economy is known as structural unemployment (Heijdra, 2017).
b)
Output gap= Actual GDP−Potential GDP
¿ 533−468

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¿ 65
Since actual GDP exceeds the potential GDP the country is experiencing inflationary gap.
Question 5
a)
Consumer surplus= 1
2 × ( 950−550 ) × 4000
¿ 1
2 × 400× 4000
¿ 800,000
Producer surplus= 1
2 × (550−100 ) × 4000
¿ 1
2 × 450× 4000
¿ 900,000
Total surplus=Consumer surplus+ Producer surplus
¿ 800,000+900,000
¿ 1,700,000
b)
At price $850, Consumer surplus= 1
2 × ( 950−850 ) × 2000
¿ 1
2 ×100 ×2000

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¿ 100,000
Producer surplus= ( 850−200 ) ×2000+ 1
2 × ( 200−100 ) ×2000
¿ 650 ×2000+ 1
2 × 100× 2000
¿ 1,300,000+100,000
¿ 1,400,0000
Total surplus=Consumer surplus+ Producer surplus
¿ 100,000+1,400,000
¿ 1,500,000
Because of a higher price, consumer surplus decreases from 800,000 to 100,000 while
producer surplus increases from 900,000 to 1,400,000.
c)
Total surplus is not maximized in part (b). Total surplus is higher in part (a) relative to
that in part (b). At equilibrium, total surplus was 1,700,000. With increase in price to $850,
consumer surplus decreases and producer surplus increases. Loss is consumer surplus however is
larger than gain in producer surplus resulting in a decrease in total surplus to 1,500,000. The
marker outcomes are not efficient since total surplus decreases because of a higher price and
lower quantity (Pindyck & Rubinfeld, 2015). Following a high price Super Brand can enjoy

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significant gain as reflected from a larger amount of producer surplus. In order to enjoy a higher
surplus, Super Brand chooses to charge $850 a T-shirt.

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References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Cowen, T., & Tabarrok, A. (2015). Modern principles of microeconomics. Macmillan
International Higher Education.
Fine, B. (2016). Microeconomics. University of Chicago Press Economics Books.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Kolmar, M. (2017). Principles of Microeconomics. Springer International Publishing.
Kreps, D. M. (2019). Microeconomics for managers. Princeton University Press.
McKenzie, R. B., & Lee, D. R. (2016). Microeconomics for MBAs: The economic way of
thinking for managers. Cambridge University Press.
Mochrie, R. (2015). Intermediate microeconomics. Macmillan International Higher Education.
Nguyen, B., & Wait, A. (2015). Essentials of Microeconomics. Routledge.
Pindyck, R. S., & Rubinfeld, D. L. (2015). Microeconomics. Boston: Pearson,.