Economics Homework: Market Equilibrium and Policy Impact Analysis

This economics assignment delves into the analysis of market equilibrium and the impact of policies within perfectly competitive markets. It examines the effects of the General Entertainment Authority's "Entertainment Challenges" program on the entertainment sector, predicting a rightward shift in the supply curve, leading to increased quantity and decreased prices. Furthermore, the assignment explores a policy designed to shift the equilibrium in the unhealthy food market by mandating technology upgrades and implementing awareness programs, resulting in a leftward shift of both demand and supply curves, increasing price and decreasing quantity. Finally, the impact on the healthy food market, a substitute for unhealthy food, is analyzed, predicting an increase in demand and subsequent rise in both price and quantity due to the initial policy changes.

Running head: ECONOMICS
Economics
Name of the Student
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1ECONOMICS
Table of Contents
Exercise 1...................................................................................................................................2
Exercise 2...................................................................................................................................4
Answer A...............................................................................................................................4
Answer B................................................................................................................................5
References..................................................................................................................................7

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Exercise 1
In a perfectly competitive market, equilibrium is determined from the independent
forces of demand and supply. Neither buyers nor sellers can influence market price. Changes
in the demand, supply condition in the market results in a change in equilibrium condition
and there is an associated change in market price and market price. Policies taken by
government or other authority might affect demand or supply1. It is given that structure of
entertainment sector is perfectly competitive. Now, General Entertainment Authority has
announced to launch a national program with the objective of discovering talents under the
program named “Entertainment Challenges”.
In the entertainment sector, common people or spectators generates the demand. The
supply on the other hand is determined from the artists and programmers participating in
various entertainment program. The new program aims to develop, discover and enable the
best talents to reach the world - class level. The program also involve monetary prizes. The
winning contestants are to receive total of SR20m for training program, which will enhance
their talents. The entertainment challenges cover different fields like song, comedy, poetry,
circus, graphic arts, motorbikes shows, cookery shows and other. The program thus likely to
increase supply of fresh talents in the industry. As the supply increases, the supply curve of
entertainment sector moves to the right. The equilibrium moves down along the demand
curve2. Equilibrium quantity in the entertainment sector increases while equilibrium price
decreases. The impact of proposed policy on the entertainment industry is shown below.
1 Baumol, William J., and Alan S. Blinder. Microeconomics: Principles and policy. Nelson Education, 2015.
2 Cowen, Tyler, and Alex Tabarrok. Modern principles of microeconomics. Macmillan International Higher
Education, 2015.

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Figure 1: Policy analysis for entertainment industry
In the figure above, DD and SS show the respective demand and supply curve of
entertainment sector. The equilibrium held at point E. Now, the new program by increasing
entry of new talents in the industry supply. Accordingly, the supply curve shifts to the right to
S1S1. The equilibrium shifts from E to E1. Price in the industry falls to P1 and equilibrium
quantity increases to Q1.

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Exercise 2
Answer A
Figure 2: Policy impact in the market for unhealthy food
The above figure describes market for unhealthy food. Demand and supply curve
unhealthy is shown by the respective demand and supply curve named as D and S. Initial
equilibrium in the market for unhealthy food is at E0. Corresponding to the equilibrium, price
and quantity in the market are P0 and Q0 respectively. The objective is to shift the equilibrium
from E0 to E1. As the new equilibrium is neither on existing demand curve nor on existing
supply curve, both demand and supply curve have to be shifted to attain the new equilibrium3.
Suppose government mandates use of certain technology to improve nutrients content of the
food. The new technology is expensive and hence, increases cost of production for sellers in
the industry. Suppose the policy also specifies that those who do not use the technology
might face the consequence of cancelling their license. Sellers who cannot afford the cost
would leave the industry reducing supply. Consequently, the supply curve would shift to the
left to S1. In addition, suppose the government starts some awareness program to aware
people about the unhealthy consequences of such food. This will reduce demand for
3 Cowell, Frank. Microeconomics: principles and analysis. Oxford University Press, 2018.

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unhealthy food by making people more aware4. Accordingly, the demand curve will shift to
the left to D1- The new equilibrium occurs at the point E1. The combined policy that influence
both demand and supply increases equilibrium price in the unhealthy food market to P1 while
equilibrium quantity in in the market for unhealthy food declines to Q1.
Answer B
Figure 3: Impact on the healthy food market
Health food is a substitute of unhealthy food. For substitute goods, an increase in
price of one good increases demand for its substitute products5. As discussed above, the
proposed policy increase price of unhealthy food by reducing supply. If price of unhealthy
food increases, then people tend to substitute unhealthy food with healthy food option. This
will lead to an increase in demand for healthy food. Demand for healthy food further
increases due to awareness campaign of the government. As demand of healthy food
increases due to increase in price of unhealthy food and government awareness campaign,
4 Mochrie, Robert. Intermediate microeconomics. Macmillan International Higher Education, 2015.
5 Nicholson, Walter, and Christopher Snyder. Intermediate microeconomics and its application. Nelson
Education, 2014.

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demand curve for healthy food shifts from D1D1 to D2D26. Given the supply curve, expansion
of market demand will shift the equilibrium up along the supply curve to E2. The increased
demand for healthy food increases market price of healthy food increases to P2. The
equilibrium quantity of healthy food increases to Q2.
6 Mahanty, Aroop K. Intermediate microeconomics with applications. Academic Press, 2014.

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References
Baumol, William J., and Alan S. Blinder. Microeconomics: Principles and policy. Nelson
Education, 2015.
Cowell, Frank. Microeconomics: principles and analysis. Oxford University Press, 2018.
Cowen, Tyler, and Alex Tabarrok. Modern principles of microeconomics. Macmillan
International Higher Education, 2015.
Mahanty, Aroop K. Intermediate microeconomics with applications. Academic Press, 2014.
Mochrie, Robert. Intermediate microeconomics. Macmillan International Higher Education,
2015.
Nicholson, Walter, and Christopher Snyder. Intermediate microeconomics and its
application. Nelson Education, 2014.