BEO1105 - Concepts of Economics and Market Analysis Assignment

This economics assignment analyzes various market scenarios and economic concepts. The first question examines the impact of a poor wine-grape harvest in France on both the French and Australian wine markets, including shifts in supply and demand curves. The second question delves into the con...Read More

Running head: CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
Name of the Student
Name of the University
Author Note

1CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
Table of Contents
Answer to question 1:.................................................................................................................2
Part a:.....................................................................................................................................2
Part b:.....................................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................4
Answer to question 4:.................................................................................................................6
Answer to question 5:.................................................................................................................8
References..................................................................................................................................9

2CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
Answer to question 1:
Part a:
As per the news reports, due to a poor harvest of wine-grape in France, there is a fall
in the supply of wine in the country. The diagram mentioned below explains the change in
market condition for French wines. A reduced supply of the main ingredient has led to a fall
in the supply of wines produced in France. This fall in input supply has shifted the supply
curve of final product SS in the left to SS’. There is a shift in the equilibrium from E to E’.
As a result, the price has increased to P’ corresponding to a fall in output to Q’. This
illustrates that the price of French wine can increase with a fall in its quantity.
Figure 1: Change in the market of French Wines in France
(Source: Created by Author)
Part b:
As explained in the above section, lower production has raised the price level of
French wines. This has transmitted a positive effect on the Australian wine producers. The
demand for Australian wines in France has increased its sales and elevated their revenue.
This can be explained with the help of a graph. Figure-2 pictures the rightward move in the
demand line, which is a result of an increase in demand for wines manufactured in Australia.

3CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
SSA is the supply curve of Australian wine and DDF is the demand for wines in France. The
shift is a result of the increase in demand due to a fall in the supply of its substitute (Cooter
and Ulen 2016). Thus, there is a shift in the market equilibrium for Australian wines in
France. This boost in demand has ascended the prices from P to P’and amount supplied shifts
from Q to Q’ in the market for wines in France.
Figure 2: Effects of change in demand on Australian wine in France market
(Source: Created by Author)
Answer to question 2:
The demand for Apple products is an exception to the demand law (Kannai and
Selden 2014). As per the law, the amount of a product demanded should fall when the price
of the good increases (Posner 2014). Apple products are a Veblen product for its exclusive
designs and appeal that provides a symbol of status and power for the owner. The demand for
this kind of products increases with an increase in their price (Ghosh and Varshney 2013).
Figure-3 explains an upward rising demand curve DA, representing a Veblen product that is
Apple IPods in this example. Due to the incorporation of new features into the Apple IPods,
there is a surge in the retail price of the Apple computers. Initially, the price is PA, due to an

4CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
increase in innovation the price moves up to P’A. The Veblen effect increases the amount
demanded of the product from QA to Q’A.
Figure 3: A Veblen good with an upward rising demand curve
(Source: Created by Author)
Answer to question 3:
All the external factor remaining intact, it is being mentioned that there is a decrease
in both the supply and demand for new commercial buildings. As the magnitude of shift
between them is unavailable, there can be three possible scenarios (Hildenbrand 2014).
Firstly, when the degree of shift in both supply and demand for the buildings are equal.
Figure-4, explains this situation that is, the supply S shifts left to S’ and demand shifts from
D to D’. The extent of their movement is similar, thus, there is a fall in the quantity supplied
to Q’ and the price remains the same P=P’. Secondly, figure-5 explains the condition when
the extent of the shift in supply exceeds the shift in demand. The shift in supply is from S to
S’ and the demand shift is lesser from D to D'. This unequal shift increases the price of new
apartments to P’ whereas their supply falls to Q’.

5CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
Figure 4: Diagram explaining uniform shifts of both the curves
(Source: Created by Author)
Figure 5: Extent of the shift in supply is greater than demand
(Source: Created by Author)

6CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
Figure 6: when the amount of shift in demand exceeds supply
(Source: Created by Author)
Figure-6 illustrates the third condition where the degree of movement in the demand curve
is larger compared to the shift in supply. This follows the law of supply that is; there is a
reduction in amount supplied from Q to Q’ with a drop-in price level from P to P’.
Answer to question 4:
When the demand for a product has an elastic demand, the angle of the demand curve
is less than the supply. Contrary to this, when there is an inelastic demand the slope is greater
than the supply comparing both the inelastic and elastic demand curves, the slope of a steeper
demand is greater than the slope of the flatter curve (Armitage Dionysiou and Gonzalez
2014). Diagram 7 and 8 explain the scenario possessed by an elastic and inelastic demand
curve. When the demand is elastic, represented by DD curve in figure-7, with an increase in
supply from SS to SS’ the price falls to P’ and the quantity rises to Q’. Moreover, the total
revenue of a producer will rise because of the demand being elastic with every small change
in price there will be a larger increase in demand for the elastic good. Thus, producers should
reduce their pricing structure to boost profit margins. Contrary to this, when the demand is

7CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
inelastic the producers should increase their pricing level due to the product inelasticity. The
magnitude of the fall in quantity demanded is lesser compared to a greater increase in price.
This situation is illustrated in figure-8.
Figure 7: Effects of a flatter elastic demand on output
(Source: Created by Author)
Figure 8: Impact of a steeper demand on displacement of quantity

8CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
(Source: Created by Author)
Answer to question 5:
A minimum price is a floor price that is adopted by the administration to either protect
the producers or restrict the consumers from consuming harmful products. A minimum price
is always fixed above the equilibrating level of price to make it operative in the market
(Ingenbleek and Van der Lans 2013). Here, the Western Australian government has planned
to set a minimum price to restrict the consumption of alcohol due to its risky effects. Figure-9
explains that the floor price reduces the consumption to Q1 and increases the supply to Q2.
The consumer surplus falls from DPE to DP1A. However, it increases the producers' surplus
from SEP to SBAP1. This results in a deadweight loss of AEB, which is a result of
inefficiency. Although in the market for alcohol, it can be seen as social welfare because
consumption of alcohol can lead to illness and anti-social behaviors that create negative
externalities (Chalmers et al. 2013).
Figure 9: A minimum price set by the government on alcoholic beverages
(Source: Created by Author)

9CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS

10CONCEPTS OF ECONOMICS AND THEIR IMPLICATIONS
References
Armitage, S., Dionysiou, D. and Gonzalez, A., 2014. Are discounts in seasoned equity offers
due to inelastic demand?. Journal of Business Finance & Accounting, 41(5-6), pp.743-772.
Chalmers, J., Carragher, N., Davoren, S. and O'Brien, P., 2013. Real or perceived
impediments to minimum pricing of alcohol in Australia: public opinion, the industry, and
the law. International Journal of Drug Policy, 24(6), pp.517-523.
Cooter, R. and Ulen, T., 2016. Law and economics. Addison-Wesley.
Ghosh, A. and Varshney, S., 2013. Luxury goods consumption: a conceptual framework
based on the literature review. South Asian Journal of Management, 20(2), p.146.
Hildenbrand, W., 2014. Market demand: Theory and empirical evidence (Vol. 215).
Princeton University Press.
Ingenbleek, P.T. and Van der Lans, I.A., 2013. Relating price strategies and price-setting
practices. European Journal of Marketing, 47(1/2), pp.27-48.
Kannai, Y. and Selden, L., 2014. Violation of the Law of Demand. Economic Theory, 55(1),
pp.1-28.
Posner, R.A., 2014. Economic analysis of law. Wolters kluwer law & business.