Economics and Business Environments: Coursework 1 Analysis

Verified

Added on  2023/01/10

|13
|2650
|99
Homework Assignment
AI Summary
This economics coursework assignment presents a comprehensive analysis of various economic concepts and scenarios. The assignment begins with an examination of demand, exploring how factors such as changes in PC prices, rival software prices, and consumer preferences impact the demand for protection software. It then delves into elasticity, calculating and interpreting both price and income elasticity of demand. Further questions address market structures, including diseconomies of scale and the impact of market forces on different industries like plush toys, private nurseries, and personal surveillance equipment. The assignment also explores consumer and producer surplus, deadweight loss, and the effects of import bans. Finally, it analyzes the impact of government subsidies on energy-efficient boilers and smart meters, and discusses the characteristics of perfectly competitive markets. The student has utilized relevant graphs and economic models to support the analysis.
Document Page
Economics and The business
environments
1
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
Contents
QUESTION 1..................................................................................................................................1
a) Explaining the likely effect on the demand of the protection software...................................1
b) Relative Elasticity....................................................................................................................2
QUESTION 2..................................................................................................................................3
QUESTION 3..................................................................................................................................4
QUESTION 4..................................................................................................................................6
a) Domestic Consumer Surplus and Producer Surplus at Price PW............................................6
b) Domestic Consumer Surplus and Producer surplus at Price PE.............................................6
c) Does any deadweight loss occur from the removal of international trade?.............................6
d) Do you believe that ban of imports of Good A was beneficial overall?.................................7
QUESTION 5..................................................................................................................................7
a) Equilibrium price and quantity of both products before the subsidy......................................7
b) Prices consumers pay and producers receive after the government subsidy...........................8
c) How much would each of the subsidy programmes cost the government?.............................8
QUESTION 6..................................................................................................................................8
a) Perfectly competitive markets.................................................................................................8
b) Preference of perfectly competitive markets...........................................................................9
REFERENCES..............................................................................................................................10
2
Document Page
QUESTION 1
a) Explaining the likely effect on the demand of the protection software
Decreasing the price of PCs
In this scenario, the protection software for personal computers is the main products and
the personal computers are the complementary products which are used together by consumers to
acquire maximum satisfaction (Bös, 2014). When the price of PCs (complementary goods)
decreases, the affordability and demand of PCs increases; this further impacts the protection
software resulting increasing demand of protection software.
(Source: Complementary products, 2020)
Increases in the price of relative software made by a rival company
In this scenario, protection software is the main product and relative software developed
by rival company is a substitute good. When the price of relative software (substitute good)
increases, its affordability reduces which decreases the demand of relative software (Ruegg and
Marshall, 2013). The decreasing demand and increasing price of substitute good impacts the
protection software and its demand increases.
3
Document Page
(Source: Substitute goods, 2020)
More consumers utilising non-Windows tablets rather than laptops
In this scenario, the protection software is the main product and its compatibility with
Windows operating system is a complementary good. When the demand of Windows operating
system is decreasing, then the demand of protection software will also decrease.
Laptop and PC manufacturers creating their own virus and malware protection software
If manufacturers begin to develop their own protection software, the substitute of the
main good will increase in market. The increasing demand of the substitute goods will reduce the
demand of the main product which is protection software.
b) Relative Elasticity
Price elasticity of demand between Quarter 1 and Quarter 2
Formula of price elasticity of demand = % Change in the quantity demanded / % Change
in the price
Change in price = £6.99 - £9.99 = - £3
% Change in price = - £3 / £9.99 *100 = - 30.03%
Change in quantity = 11000 - 10200
% Change in quantity = 800 / 10200 *100 = 7.84%
Price elasticity of demand = 7.84% / - 30.03%
= - 0.26 = 0.26
It has been considered from analysis that price elasticity of demand is 0.26. As this value
is lower than 1, it implies that price elasticity is inelastic. In such situation, customers are
considered as unreactive to the prices. In order to increase the quantity demanded of software
4
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
product, organisation decreased their prices but their customers are unreactive to their prices so it
is recommended to this organisation to do not reduce their prices to attract customers as their
customers are already unreactive to the change in prices.
Income elasticity of demand
Formula of income elasticity of demand = % Change in the quantity demanded / % Change
in the income
% Change in quantity = Change in quantity demanded / Initial quantity demanded * 100
= [(10000 – 7000) / 10000] * 100
= 30%
% Change in income = Change in income / initial income
= [(£3000 - £2500) / £3000] * 100
= 16.66%
Income elasticity of demand = 30 / 16.66
= 1.80
The income elasticity of demand is 1.80 which is higher than 1; it is considered that when
income elasticity is higher than 1, then the product is a luxury or superior good. With the income
of consumers change by 16%, the quantity of Premium virus protection software changed by
30%. Unless, a product is a necessity to be consumed, the demand of goods decrease when the
income of consumers decrease and the consumers’ affordability to buy luxury goods also
decrease.
QUESTION 2
A package delivery company is intended to satisfy the increasing demand of their services.
In order to do this, company has make various attempts which includes paying ad hoc overtime,
hiring additional bikes and vans and outsourcing different task. All these attempts are resulting in
satisfying the demand of customers to an extend but in long run the costs involved in all these
attempts will begin to rise that will decrease the profit of this company. The strategy which has
been currently adopted by this package delivery company is diseconomies of scale.
As a consultant of this company, the strategy which will help this company to reduce their prices
in long run is economies of scale (Eichhorn, 2013). As it can be seen in below image that in case
of diseconomies of scale, costs are low at first but in long run they begin to increase and on the
5
Document Page
contrary the costs are high at first while adopting economies of scale but they begin to decrease
in long run.
(Source: Diseconomies of Scale, 2020)
By considering the above economies of scale strategy, there are various means by which
this company can reduce their expenses or average costs in long run. This company must hire
multiple employees and then train them alonside buy appropriate vehicles which can be used for
a longer run. This will help in incresaing the delivery activities of the company. As the
production (service of deliveries) will increse, they average cost of production will decrease in
the long run (Stigum, 2015).
Also, this packaging delivery should buy a software which can perform all operating
functions and an additional team mst hired for full time that can perform functions such as
compensation and hiring on short notice period. These investments will result into higher costs at
first but in long run these activities will satisfy the demand and will increase the demand by
which average costs will be reduced.
QUESTION 3
There are various markets are provided along with the certain circumstances in those
markets (articles). Every market is impacted by those circumstances and the impact of such
6
Document Page
situations are analysed below to identify how they may affect the market price and quantity of
the markets.
Plush toys – This market produces traditional stuffed animal toys for children. According to
the given article, children are playing less with these traditional toys and more with electronic
devices. In this scenario, the electronic devices are the substitute goods of traditional toys. As
mentioned in the below graph, the first graph is of electronic devices. As the demand and supply
of electronic devices increases in market, the demand and prices of its substitute products shown
by second graph decreases as well resulted in lower quantity demanded for plush toy market.
(Source: Demand of Substitute Goods, 2020)
Private Nurseries – This market provides services to parents of child care. The article about
this market states that the government has increased the support for working parents by paying
for the private nurseries. In this situation, the government has interfered by implementing a
policy; this policy has increased the affordability of nurseries resulting into high demand and
prices of nurseries in market (Kalecki, 2013).
Personal Surveillance Equipment for Home Security – According to the article based on this
market, there is an increased theft alongside improvement of technology in this market.
Improvement of technology and preference of consumers are the factors which increase the
demand of products. Due to improved technology and increased theft, the demand of personal
surveillance equipment has been increased.
7
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
Electric Bicycles – The article associated with electronic bicycles states that the cost of
availability of some metals used to produce electronic bicycles has been increased alongside
which road tax has also increased. These factors are the market forces which will discourage
people from purchasing electric bicycles due to which price and demand of this product will
decrease.
QUESTION 4
a) Domestic Consumer Surplus and Producer Surplus at Price PW
Consumer surplus is a difference between the value which consumer actually pays and the
value which consumer is willing to pay. The consumer surplus in the below graph is Pw – A – E –
Do (Barberis, 2013).
The producer surplus is the difference between the price which producer actually receives
and what producer is willing to receive. The consumer surplus from below graph is Pw – A – So.
b) Domestic Consumer Surplus and Producer surplus at Price PE
Considering the same graph attached in above section, the consumer surplus at the price of
PE is PE – E – Do. And on the other hand domestic producer surplus at the price PE is PE – E – So.
c) Does any deadweight loss occur from the removal of international trade?
A dead weight loss is the cost which is created by the market inefficiency. This cost has
been incurred by society when the supply and demand are out of the equilibrium (Lavoie, 2014).
This concept is an economic phenomenon which occurs when there is inefficiency in the
allocation of resources. In the present case of Good A, there is a deadweight loss which does not
8
Document Page
imparts of either consumer or producer surplus. In the below graph, deadweight loss is being
highlight.
d) Do you believe that ban of imports of Good A was beneficial overall?
The decision of banning the import of Good A was a beneficial decision as it eliminated
ample of deadweight loss which was reducing the consumer and producer surplus.
QUESTION 5
a) Equilibrium price and quantity of both products before the subsidy
Project 1: Energy Efficient Boilers
QS = 50P – 120000 QD = 240000 – 70P
QS = QD
50P – 120000 = 240000 – 70P
50P + 70P = 120000 + 240000
120P = 360000
P = 3000
So, Equilibrium price of Project 1 is 3000.
QD = 240000 – 70P
QD = 240000 – 70 * 3000
= 240000 – 210000
= 30000
So, Equilibrium quantity of Project 1 is 30000.
9
Document Page
Project 2: Smart Meters
QS = 10P – 70 and QD = 140 – 5P
QS = QD
10P – 70 = 140 – 5P
10P + 5P = 140 + 70
15P = 210
P = 210 / 15
P = 14
So, equilibrium price of Project 2 is 14.
QD = 140 – 5P
QD = 140 – 5 * 14
= 140 – 70
= 70
So, equilibrium quantity of Project 2 is 70.
b) Prices consumers pay and producers receive after the government subsidy
Project 1: Energy Efficient Boilers
P = 3000
Subsidy = £300
Price to be pay after subsidy = £2000 + £300 = £ 2300
Project 2: Smart Meters
P = 14
Subsidy = £3
Price to be pay after subsidy = £12 + £3
= £15
c) How much would each of the subsidy programmes cost the government?
Project 1: Energy Efficient Boilers
Equilibrium quantity = 3000
Subsidy = £300
Subsidy programmes cost = 30000 * 300
10
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
= £9000000
Project 2: Smart Meters
Equilibrium quantity = 70
Subsidy = £3
Subsidy programmes cost = 70 * 3
= £210
QUESTION 6
a) Perfectly competitive markets
A perfectly competitive market is a hypothetical market in which all the sellers sell an
identical product without any barrier of entry and exit from the market. A perfectly competitive
market is considered as more allocatively efficiently than monopolies because in this market
firms always produce products at the minimum of average cost and they set the prices for their
products which are equal to marginal cost. In this market, there are no issues of government
policies and all the products which are sold are identical.
(Source: Perfectly competitive market, 2020)
The above graph represents the market situation of perfectly competitive market where
average costs are at minimum.
11
Document Page
b) Preference of perfectly competitive markets
Even after observing that perfectly competitive markets are more allocatively efficiently and
productively efficient in the long run compared to monopolies, it does not mean that perfectly
competitive markets are preferred than monopolies. In various cases perfectly competitive
markets are not preferred as there is no incentive for firms to innovate and sell new products.
Also, firms cannot charge higher profit margin as perfect competition profit margin is fixed
(Fuss and McFadden, 2014). Also, in this market situation, a seller continues to sell standardised
products.
12
chevron_up_icon
1 out of 13
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]