Managerial Economics: Analyzing Market Forces and Government Role

This report delves into core concepts of managerial economics, starting with an examination of supply schedules and factors influencing supply curves, including the impact of product prices, technological advancements, and operational costs. It analyzes the effects of perfectly inelastic demand curves on market equilibrium, highlighting how shifts in supply affect prices without changing quantity demanded. The report further explores various elasticity concepts, such as price elasticity of demand and supply, and their formulas. It investigates the impact of technological innovations and supply shocks, like droughts, on market prices and quantities, using the vanilla ice cream market as a case study. Furthermore, it assesses the effects of real-world events—such as journalist salary increases, major news events, sports team victories, and changing consumer preferences—on the demand and supply of newspapers, St. Louis Rams T-shirts, bagels, and economics textbooks. Finally, the report touches upon the characteristics of perfect competition, the role of government in addressing market failures through price regulations and ownership, and provides a detailed analysis of the market for roses in the UAE. Desklib provides similar solved assignments and resources for students.

Running head: MANAGERIAL ECONOMICS
Managerial Economics
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MANAGERIAL ECONOMICS
Table of Contents
Question 1: Supply schedule and factors of supply curves........................................................2
Question 2: Various concepts of elasticity and its formulas......................................................4
Question 4: Effect in the demand and supply of the vanilla ice-cream factory.........................6
Question 5: Effect on demand and supply on the following events...........................................8
Question 6: Market for rose in UAE........................................................................................16
Question 7: Characteristics of the markets...............................................................................18
a) Understanding the concept of macroeconomics..................................................................18
b) Pricing policy.......................................................................................................................18
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Question 1: Supply schedule and factors of supply curves
Supply schedule is the tabular representation of the quantities that the suppliers will
bring goods and services into market at a particular price. The supply schedule is showing the
tabular representation that will show the capability of economy to supply the products to the
economy at a given price to the market (Kaushik, 2016). On the other hand, the supply
schedule will highlight the development of goods and services in the market so that they the
consumer can get a better idea about the market it is important for the study to identify the
factors that will increase the quantities supplied in the economy.
Prices of the products
Prices of the products will be one of the important factors that will be determining
quantity of goods and services that will be producing the goods and will be supplied to the
market. Through the development of the prices of the products it is important for the
suppliers to determine the quantities that will be supplied (Stiglitz and Rosengard, 2015). The
price of the goods is important even for the buyers as they will be able to increase their
expectations regarding the pricing policy of the goods and services. It is important in the
sense that through the development of better and effective prices, it will important to
determine the quantity they are going to purchases.
Technological advancements
Technological advancements will automatically increase the quantity of the goods that
will be supplied in the economics. With better technological the suppliers will automatically
supply more in the economy (Van Essen et al. 2015). The development of better business will
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be possible in the economy and the supply will increase if advanced level of technology is
being used in the operation and manufacturing of the goods and services.
Costs of operation
Cost of operation is one of the important aspects that will determine the development
of increased level of supply of goods in the market. Through the development of better and
effective operation in business, cost of operation plays a vital roles. If the cost of the
operation increases then most of the suppliers will not increase their supply in the market.
Overall development of the business of any products will not be helpful if the operation costs
is getting increased.
1b) Situation if the demand curve is perfectly inelastic
Figure 1b: Effects in the position of equilibrium when demand curve is perfectly
inelastic in nature
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(Source: Created by Author)
In the above diagram, it can be seen that due to perfect inelastic characteristics of
demand curve, the demand function is vertical in nature. On the other hand, due to increase of
the supply of goods and services by double amount the supply curve is getting shift to the
rightward direction. Since the demand curve is perfectly inelastic in nature the quantity
demanded will not make any changes. Due to rightward supply of supply curve the price will
fall but there will not be any changes on the demand function of the good and the quantity
demanded will stick to one position as shown in the diagram above.
Question 2: Various concepts of elasticity and its formulas
The concept of elasticity is basically showing the degree of responsiveness of one
variable due to one unit changes in the other variable. Now since both the demand and supply
curve shows the relationship between price and quantity supplied. Now concept of elasticity
is applicable to both demand and supply curve. Now the concept of elasticity is being
discussed in the following situations.
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Figure 2: Formula of price elasticity
(Source: Created by Author)
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Question 4: Effect in the demand and supply of the vanilla ice-cream factory
Figure 4a: Effect in the price and quantity due to invention in synthetic vanilla
(Source: Created by author)
In the above figure, due to the technological innovations the invention of the synthetic
vanilla has increased that has reduced the total cost of operation. On the other hand, the
development of the business it has been seen that due to decrease in the cost of operation the
supply curve will be shifting towards the right hand side. The demand of the consumers will
be unchanged and due to this impact, the price of the ice cream will decrease and the
rightward shift of the supply curve is increasing the quantity supplied. The price is coming to
P1 from P0 and the quantity is getting increased to Q1 from Q0.
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4b) Effect of severe draught
Due to the severe draught the production of the milk has been decreased. This will
automatically shift the supply curve to the left.
Figure 4b: Effects due to draught
(Source: Created by Author)
In the above diagram it can be seen that due to the draught the supply of milk is
getting short and that is reducing the supply curve shift leftward. Due to the shift of the
supply curve towards left, the price of the milk will increase and the quantity demanded will
fall. Due to increase in the price of raw materials, the price of the cream will be increased
since cream is the main ingredients of chocolate ice cream. The increase in price will
automatically increase the price of the ice-cream.
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Question 5: Effect on demand and supply on the following events
a) The market for newspapers in your town
Case 1: Salaries of the journalists go up
When the salaries of the journalists will go up, it will not affect the demand and
supply of the newspaper. This is because with the increase in the salaries will make an
improvement in the demand curve of the journalists in their daily standards of living. This
will not make any impact on the newspaper market.
Figure 5a (case 1): Effects of demand and supply curve due to an increase in salaries of
journalists
(Source: Created by Author)
Case 2: There is big news in the town reported in the newspaper
This incident will be having a genuine effect on the demand and supply of
newspapers. Due to the big news that has happened in the town and reported in the
newspaper will definitely increase the demand of the local people to read the news. The
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increase in the demand curve or the rightward shift of the demand curve will give rise to the
increase in both price and quantity.
Figure 5a (case 2): Effect on the demand and supply curve due to the occurrence of an
event in town
(Source: Created by Author)
In the above diagram, initially, the demand curve is Demand curve 1and at this point
of intersection with the supply curve, the price level is P0 and the quantity demanded is Q0.
Due to the occurrence of the event, the demand curve has increased and shifted towards its
right. The new demand curve is Demand curve 2. The price level increased to P1 and the
quantity demanded is Q1.
However, this occurrence will have another impact on the supply curve and the
equilibrium price in the long run. In the long-run, the supply curve will shift towards the
right. The quantity demanded will increase further but the price will stay in its position.
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Long run impact of this occurrence of this event
(Source: Created by Author)
b) The market for St. Louis Rams (a professional football team) cotton T-shirts
Case 1: The Rams win the Super Bowl competition
Due to this impact, the demand for T-shirts will be increased by a huge margin. This
is due to the fact that since Rams have won the super bowl competition, it is from the nature
of consumer behaviour the demand for the cotton T-shirts will be increased and the demand
curve will be shifting rightwards.
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Figure 5b (case 1): Effect on the demand and supply curve due to Rams win the Super
Bowl competition
(Source: Created by Author)
Case 2: The price of cotton increases
Due to an increase in the price of cotton, the price of the T-shirts will be increased in
the market. This increase in the price will definitely make the suppliers more profitable. Due
to this thing, the suppliers of the T-shirt will increase the supply and the supply curve will be
shifting towards right. Due to the shift of the supply curve towards its right, the price of the
cotton T-shirts will fall and quantity demanded will increase by a huge margin.
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Figure 5b (case 2): Effect on the demand and supply curve due to an increase in the
price of cotton
(Source: Created by Author)
c) The market for bagels
Case 1: People realize how fattening bagels are
Due to this understanding, the demand for the bagels will decrease making the
demand curve to shift leftwards. Due to the leftward shift of the demand curve, both the price
and quantity will shift leftward.
Figure 5c (Case 1): Changes in demand and supply curve due to fat in bagels
(Source: Created by Author)
In the initial period, the price was P0 and after the changes took place, the price of the
bagels decreased to P1. In the initial period, the quantity demanded was Q0 and after the
changes the quantity demanded is Q1.
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Case 2: People have less time to make themselves a cooked breakfast
Due to this impact of people finding less time to cook breakfasts will obviously
increase the demand of the bagels to increase. Due to this increase in the demand curve and
the shift of the curve towards rightwards will make both the price and quantity to increase.
Figure 5c (case 2): Effect on the demand and supply curve due to People have less time
to make themselves a cooked breakfast
(Source: Created by Author)
d) The market for the Krugman and Wells economics textbook
Case 1: Your professor makes it required reading for all of his or her students
Due to this impact of the professor making it required for all of his students to read
the book will obviously increase the demand of the bagels to increase. Due to this increase in
the demand curve and the shift of the curve towards rightwards will make both the price and
quantity to increase.
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Figure 5d (case 1): Effect on the demand and supply curve due to professor makes it
required reading for all of his or her students
(Source: Created by Author)
Case 2: Printing costs for textbooks are lowered by the use of synthetic paper
Due to a decrease in the printing costs of the book, the price of the book will be
decreased in the market. This increase in the price will definitely make the suppliers more
profitable as the operating costs will decrease. Due to this thing, the suppliers of the book will
increase the supply and the supply curve will be shifting towards the right. Due to the shift of
the supply curve towards its right, the price of the book will fall and quantity demanded will
increase by a huge margin.
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Figure 5d (case 2): Effect on the demand and supply curve due to printing costs for
textbooks are lowered by the use of synthetic paper
(Source: Created by Author)
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Question 6: Market for rose in UAE
6a)
Wholesaler can purchase roses from the auction at $125 per container and the
container is containing 200 stems of roses. In the absence of international trade, the price will
be $175 per container where the demand is equalling the supply and the quantities
sold=quantities purchased = 6units.
6b)
At the given price level, it is impossible to determine the comparative advantage from
the given information because, comparative advantage can be determined by use of less
resources that are being used to manufacture a particular products. From the given
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Price
(US $/container)
Quantity Demanded Quantity Supplied
(millions of containers per year)
100 15 0
125 12 2
150 9 4
175 6 6
200 3 8
225 0 10

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information, the resources that are being used to manufacture the roses are not given and for
this reason the comparative advantage cannot be determined.
6c)
If the UAE wholesalers can buy the rose at a low price, then they will not import any
quantity and they will buy all the roses from the vendors.
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Question 7: Characteristics of the markets
a) Understanding the concept of macroeconomics
The emerging telecom market in the UAE is gradually changing to perfect
competition market from the monopolistic competition. The government is opening up the
telecom market for more investments by foreign players. Due to the openness in the market,
the firms will be allowed to free entry and exit from the market. All the products sold in the
markets will be homogenous in nature and there is a huge number of buyers and sellers. The
major characteristics of this market is of perfect competition. Through the development of
perfect competition the market in UAE will be drawing more number of sellers selling the
homogenous products.
b) Pricing policy
The pricing policies that will be followed in the market will be aligned with the policy
of P=MR=MC where MR is the marginal revenue and MC is the marginal costs for the
production. This is important in the sense that it will signify the development of price
formation that the firms will be doing based on their marginal costs to produce that item.
Through this method, the companies will be able to highlight the existing resources into the
economy that will increase the overall production ability of the firms. They will be operating
as per their marginal costs and they will set the price aligning with the marginal revenue.
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Van Essen, M., Otten, J. and Carberry, E.J., 2015. Assessing managerial power theory: A
meta-analytic approach to understanding the determinants of CEO compensation. Journal of
Management, 41(1), pp.164-202.
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