ECON 2301 Homework: Kombucha Market, Immigration & Competitive Markets

This economics homework assignment analyzes the Kombucha market, immigration's impact on the economy, and the characteristics of competitive markets. The student calculates equilibrium price and quantity for Kombucha, assesses the effects of price changes and external factors like health concerns. It also uses supply and demand graphs to illustrate these changes. The assignment further explores the economic effects of immigration, discussing both potential benefits and drawbacks. Finally, it defines and describes competitive markets, outlining conditions for their emergence and how firms behave in the short and long run, including profit and loss scenarios. The assignment incorporates relevant economic concepts and theories, supported by citations of academic sources.

QUESTIONS & ANSWERS 1
QUESTIONS & ANSWERS
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1) The market for Kombucha is represented by the following equations:
Qd= 90-2P
Qs=P
Considering the fact that Qs=Qd
P=-2p + 90
90=p+2p
90=3p
Thus the equilibrium price which is represented by p=30
When the price is substituted for our initial supply function in order to obtain Qs,
Qs=p
Qs=30
This implies that the equilibrium quantity = 30
b. What if the price is $20? What will Qd and Qs be?
If P is equal to $20
When p is substituted into the functions it reads as below;
Qd=-2p +90
= - (20*20) + 90
= -40 +90
=$50
Qs is equal to p; hence,

QUESTIONS & ANSWERS 2
Qs =$20
c. If the market price was $20, would there be a surplus or a shortage in the market?
There would have been a shortage in the market if the market price had been set at $20.This
is in consideration to the fact that the quantity supplied would have increased to make the
quantity supplied less than the demanded quantity in the market. Also, most suppliers would
have been reluctant in supplying their goods at such low prices further contributing to
escalated shortages (McKenzie, 70).
Illustrate your answer in a graph showing a demand curve, a supply curve and the market
price and effect of that price. Be sure to specify if there are changes in DEMAND or QTY
DEMANDED, SUPPLY or QTY SUPPLIED and show the changes on the graph to match
your answers.
Prices Supply2
Supply1
Price1
Price2
D2
D1
Quantity2 Quantity1 Quantity
The decline in prices has made the demand to increase from D1 to D2. The increased demand
is the reason behind the shortages in demand than supply. The prices have also declined from
the equilibrium $30 to $20.

QUESTIONS & ANSWERS 3
d. Given your answer in part c, would you expect the price to rise or fall in order to find
equilibrium? Explain your reasoning.
Prices will increase.
In order to get the equilibrium, the price will have to rise. This is because the price as
indicated in the graph is lower than the equilibrium price. The fall in prices causes most
supplies to stop supplying their goods because they evade losses incurred due to low prices.
When prices are increased the equilibrium price will increase and this will motivate suppliers
to supply their goods to the market because they are able to obtain profits from the firms
(McKenzie, 60)
e. On the same graph or a new one if you prefer, show what would happen if medical
testing showed that drinking Kombucha caused excessive weight gain and terrible breath
too. Point out what you think would be the end result in regards to price and quantity.
P2
P1
V Q2 Q1 quantity
If medical testing showed that drinking Kombucha caused excessive weight gain and terrible
breath too most of the people or consumers will stop using Kombucha because of the

QUESTIONS & ANSWERS 4
negative effects. This will lead to a decrease in the demand of the products which will cause
them to incur losses thus most of them will opt out of this business.
Immigration is a hot topic, not only in the U.S. but in Europe as well. Explain in words
and by using a graph, how the influx of immigrants can help or hurt the economy.
Immigration has numerous costs and benefits to the economy. The benefits mainly stem from
the wide diversity of talents among the foreign-born workers compared to the native
workforce. This provides a large number of workers to work in the market (Debreu).
However, it may lead to having workers that are unskilled working on the forms. This
increased on a number of labor force leads to an increase in the supply of products in the
market or increase in the supply of product in the market but also increases cost incurred in
payment of salaries thus can have a negative or positive effect in the economy.
Price D1 D2
P1
P2
Q1 Q2 Quantity
Competitive market
In its basic definition, competitive markets are markets with many producers competing with
each other in order to satisfy needs and wants of many consumers in their markets. In a

QUESTIONS & ANSWERS 5
competitive market no stakeholder (producers, a group of producers, consumers, group of
consumers) can dictate how the market operates nor the prices of goods and services, and the
way they should be exchanged. Competitive markets emerge under certain conditions.
Usually, in this kind of market, there is ease of entry into the firm and exit from the firm. This
means that when the demand increase in the market, it causes the supply to increase and this
will attract many suppliers into the market. In addition to that, every firm and every consumer
the market takes the market prices of goods and services just the way they are offered in the
market. No matter how each of the stakeholders buys or sell their goods, no one can
unilaterally affect those prices. This thus means that the firms within this market face
horizontal demand curves. The curves are horizontal at market prices that have been
established by supply and demand on the market (Berry, Steven, James and Ariel, 850).
In addition to that, the quantity and price of products differ based on short term and long term
market operation. In such a short-run equilibrium, the firm begins making lots of profits. The
form can also incur losses. Also, during this short run equilibrium whether the demand
decreases or increases, it directly affects the choices and the profits of all the rest of the firms
in the market (Smith, 120).
Furthermore, on a long term basis, entry and exit of firms into the market becomes possible
because the potential firms can acquire fixed inputs and use them to become actual firms.
Existing firms can also stop renting or selling off their fixed inputs and or exit the business.
However, firms will choose to enter into the industry if the existing firms in the industry are
able to make economic profits.

QUESTIONS & ANSWERS 6
Price S
P
D
Q Quantity
Work cited
Berry, Steven, James Levinsohn, and Ariel Pakes. "Automobile prices in market
equilibrium." Econometrica: Journal of the Econometric Society (1995): 841-890.

QUESTIONS & ANSWERS 7
Debreu, Gerard. Theory of value: An axiomatic analysis of economic equilibrium. No. 17. Yale
University Press, 1987.
McKenzie, Lionel W. "On the existence of general equilibrium for a competitive
market." Econometrica: Journal of the Econometric Society (1959): 54-71.
Smith, Vernon L. "An experimental study of competitive market behavior." Journal of political
economy 70.2 (1962): 111-137.