BEO1105, Semester Tri 3 2018: Economics Assignment Analysis

This economics assignment analyzes various market scenarios using supply and demand principles. It begins by examining the effects of changes in substitute good prices, production productivity, and consumer income on the market for woollen jumpers, illustrating these effects with demand and supply graphs and explaining the market equilibrium adjustment process. The assignment then critiques a statement about garlic demand, clarifying the distinction between shifts and movements along the demand curve. Further, the assignment explores how events like bird flu and government intervention impact the market for live chicken, again using supply and demand diagrams. The assignment then calculates price elasticity of demand and discusses its relationship to total revenue, differentiating between elastic and inelastic demand. Finally, the assignment describes the characteristics of perfect competition, illustrating how the entry of new firms impacts market dynamics and profit levels. References are included.

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

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Table of Contents
Answer 1....................................................................................................................................2
(a)...........................................................................................................................................2
(b)...........................................................................................................................................3
(c)...........................................................................................................................................4
Answer 2....................................................................................................................................4
Answer 3....................................................................................................................................6
Answer 4....................................................................................................................................8
a).............................................................................................................................................8
b)............................................................................................................................................9
Answer 5..................................................................................................................................10
Reference list............................................................................................................................12

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Quantity of woollen jumpers
Price
Q1 Q
E
E1
DD1
S
Answer 1
(a)
Figure 1Decrease in the demand for woollen jumpers
When the price of the leather jackets decreases, which is the substitute for the woollen
jumpers, the demand for the woollen jumpers will be declining. The reason behind this is that
when the leather jackets will be cheap, people will be buying more of leather jacket than the
wollen jumpers. Initially, the equilibrium point was E where the demand and the supply of
the woollen jumpers were at the point of equilibrium. After the price of the leather jackets
had decreased, the demand curve shifts to the left from D to D1 and the new equilibrium
point also moves down to E1. The quantity of woolen jumpers demanded now falls from Q to
Q1.

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Quantity of woollen jumpers
Price
Q
E
D
S
S1
E1
Q1
(b)
Figure 2 increase in the supply of woollen jumpers
With the adoption of the new machineries which has also helped in increasing the
productivity of the knitting industry will increase the supply of woolen jumpers. As the
productivity of the knitting industry will rise, a greater number of woolen jumpers can be
produced. The initial equilibrium was at point E where the demand for jumpers were equal to
the supply. Now, with the rise in the production of the woollen jumpers the supply curve
shifts to right with increasing the quantity supplied from Q to Q1. The supply curve shifts to
right from S to S1 with the new equilibrium point at E1.

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Quantity of woollen jumpers
Price
Q Q1
E1
E
D1D
S
(c)
Figure 3Increase in the demand for woollen jumpers
As the woollen jumpers are considered to be normal good in this case, with the rise in
the income the consumers will be buying more of the woollen jumpers. the normal goods are
considered to be those goods whose demand usually rises when the income of the people
increases. As the income of the consumers goes up, the demand for woolen jumpers will also
increase where the demand curve will be shifting to right from D to D1. The new equilibrium
point changes from E to ED1 where the new demand curve and the supply curve meets. The
quantity demanded also rises from Q to Q1. Therefore, with the rise in the income of the
consumers, the demand for woollen jumpers will be increasing.
Answer 2

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Figure 4Movement along demand curve
When there be increase in the demand for clove of garlic, the will be movement in the
demand curve and the price will be increasing. As the price of the clove of garlic will
increase, the quantity of garlic demanded will be declining. As the demand increases, the
price of the clove of garlic will be going up. For third reason the demand curve will be
moving up and the quantity demanded will be decreasing. Therefore, with the rise in price Q
keeps on falling to Q2.

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Quantity of live chicken
Price
Q1 Q
E
E1
DD1
S
Answer 3
Figure 5 decrease in demand of live chicken
When there was a discovery of the bird flu in Sweden, the demand for live
chicken decreased since with the bird flu taking place. Due to bird flu, the demand for
chicken will be decling from D to D1. The supply remaining same, the equilibrium
point will be changing from E to E1. As the demand curve shifts to left, the quantity
demanded for live chicken will decrease. As a result, Q will move to Q1. Therefore, it
can be said with the rise in bird flu, the demand for live chicken will decrease.

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Quantity of live chicken
Price
Q1 Q
E
DD1
S
E1
Figure 6 Decrease in supply of live chicken
On the other hand, when the Swedish Government had taken precautionary measures
for culling fifty percent of the live chicken stock from the country, the supply of the live
chicken will decrease. This will make the supply curve shift to left from S to S1. As a result,
there will be change in the equilibrium from E to E1. As the supply curve moves to the left,
the quantity of the live chicken supplied will also decrease from Q to Q1. With the reduction
in the supply, the price of the live chicken will go on increasing.

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Quantity of live chicken
Price
Q1 Q
E
DD1
S
Figure 7 Change in supply and demand of live chicken
The diagram above shows the effect of supply and supply together, where the new
equilibrium quantity is at Q1. With the fall in demand as well as fall in supply the price of the
live have gone up, the demand curve shifts to left from D to D1. The new equilibrium point
also changes from E to E1. The supply curve moves from S to S1. For this reason, the
quantity of live chicken will also decline. The factors that will be affecting the demand are
the price of the commodities, price of the related goods. The factors that will be affecting the
demand are the price of the commodities, price of related goods which can be substitute as
well as the complementary goods. Other factors which will be affecting the factors of the
demand are the taste and preference, expectations of the exchange in the price in future.
Answer 4
a)
PED= (500−475) ÷ (500+475)/ 2(8USD−10USD) ÷(8USD+10USD)/2
The mid point elasticity will be ( Q2−Q1 ) ÷(Q 2+Q1)/2
(P2−P1)÷ ( P2+ P 1)/2

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(500−475) ÷(500+475)/2
(8 USD−10 USD) ÷(8 USD+10 USD) /2
Therefore, the elasticity will be -0.231. as the value of the elastic is less than one, for this
reason it can be stated as elastic.
b)
There is a presence of price elasticity and the total revenue. With the help of revenue
test, it can be determined whether the demand is either elastic or inelastic in nature. When
there will be a rise in price, it will be leading to increase in the total revenue. At that time, it
can be said that the demand is inelastic in nature. As the rise in price will not any kind of
impact on the amount of goods demanded. When the rise in price will lead to fall in total
revenue, at that time demand is said to elastic in nature. The reason behind this is that rise in
price will have a huge impact on the amount of quantity demanded. Therefore, various
commodities will be having various elasticities depending on the type of good produced.
When the demand is elastic nature, a priced rise can lead to a rise in total revenue. When the
demand will be perfectly elastic in nature, the change in price will be resulting the same
change in revenue. In case of high prices, a decline in the price will be having an elastic price
response where lower prices can result to increase in total revenue.
With the help of revenue test, it can be determined whether the demand is either
elastic or inelastic in nature. When there will be a rise in price, it will be leading to increase
in the total revenue. At that time, it can be said that the demand is inelastic in nature. As the
rise in price will not any kind of impact on the amount of goods demanded. When the rise in
price will lead to fall in total revenue, at that time demand is said to elastic in nature. The
reason behind this is that rise in price will have a huge impact on the amount of quantity
demanded. Therefore, various commodities will be having various elasticities depending on
the type of good produced. The total revenue in case of economics refers to the total receipts

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from sales of a given quantity of goods or services. In this case here the total income of the
business and is calculated by multiplying the quantity of the commodities that is sold by the
price of the goods. Marginal revenue is used in busisness which will be helping the
consumers for understanding the relationship between the number of the units sold along with
the total revenue. Therefore, it can be said that the total revenue will be changing the base of
the price elasticity of the products.
Answer 5
Figure 8Perfect competition
As there will be free exit and entry of the firms, it will result to perfect competition.
After the creation of internet platform as it is known to break down all barriers and resulted to
large increase in the number of firms entering in the industry, the firm will be earning normal
economic profit. The industry in case of perfect competition will be having large numb er of
firms where they will not be able to influence the industry and they are also known to

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produce same homogeneous products. Here in this particular situation, firms are known to be
the price takers and there is absence of any barriers to entry. Therefore, thy are perfectly
competitive in nature. The total revenue for a firm in a perfectly competitive market is the
product of price and quantity (TR = P * Q). the perfectly competitive will be characterized
by many sellers and consumers who will be selling undifferentiated products with absence of
any transaction cost . there will absence of any barriers of entry and exit and there will also
be perfect information about the price of the good. The characteristic will be as follows;
Products are homogeneous in nature. The characteristics of a good or service do not
differentiate between suppliers.
There will be free entry and exit for the producers and suppliers freely in the market.
The buyers and the sellers will be having complete information about the price, quality and
utility and also the method of production in the market.

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Reference list
Bauer, M.J.R., 2018. Principles of microeconomics.
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Fine, B., 2016. Microeconomics. University of Chicago Press Economics Books.
Friedman, M., 2017. Price theory. Routledge.
Iossa, E. and Martimort, D., 2015. The simple microeconomics of public‐private
partnerships. Journal of Public Economic Theory, 17(1), pp.4-48.
Keleş, B., Gómez-Acevedo, P. and Shaikh, N.I., 2018. The impact of systematic changes in
weather on the supply and demand of beverages. International Journal of Production
Economics, 195, pp.186-197.
Khalil, F., Lawarree, J. and Scott, T.J., 2018. Applied Microeconomics.
Serrano, R. and Feldman, A.M., 2018. A short course in intermediate microeconomics with
calculus. Cambridge University Press.
Shen, B., Qian, R. and Choi, T.M., 2017. Selling luxury fashion online with social influences
considerations: demand changes and supply chain coordination. International Journal of
Production Economics, 185, pp.89-99.

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