Module 1 Backgroundsupply And Demandrequired Readingfor A Simple Int ✓ Solved
Module 1 - Background SUPPLY AND DEMAND Required Reading For a simple introduction to the concepts of supply and demand, take a look at these animated videos from Professors Alex Tabarrok and Tyler Cowen of George Mason University. These videos will give you the basics of both the demand and supply curves: Tabarrok, A. & Cowen, T. (2015) The demand curve. Marginal Revolution University. ww.youtube.com</a>, or enable JavaScript if it is disabled in your browser.</div></div> Tabarrok, A. & Cowen, T. (2015) The supply curve. Marginal Revolution University. target="_blank">Try watching this video on or enable JavaScript if it is disabled in your browser.</div></div> Now go slightly deeper into these topics and read Chapters 1 and 3 from the following book.
Don’t worry, these chapters are short and will give you an introduction to the main topics of this module: Stengel, D. (2012). Managerial Economics Principles . Flat World Education. Finally, read Chapters 3 and 5 of the following book to get a more detailed overview of the concepts for this module. Pay special attention to the “Self-Check Questions†at the end of each section, which include the solutions.
Before submitting the Case Assignment, it is best to test your knowledge of the concepts with the practice questions in this book: Taylor, T. (2014) Principles of Microeconomics. OpenStax College. / [email protected] :UfIHC0qu@6/Introduction-to-Demand-and-Sup Supply and demand Assignment Overview Before beginning this assignment, make sure you have gone carefully through all of the required readings for this module. It is very important to carefully absorb the general concepts as well as the numerical examples in the background readings. For this assignment, you will have to answer some purely conceptual questions, as well as some numerical problems. For conceptual questions, make sure to thoroughly explain your answers and to cite specific readings from the required background materials to explain your answers.
For numerical problems, make sure to show all of your work and explain how you arrived at your answers (partial credit can be given if you get the final answer wrong but do some of the steps correctly). Case Assignment Part A: Conceptual questions 1. Suppose you own a pet shop. Your sales are decent but a marketing consultant tells you that you could increase your sales and be able to charge a higher price if you spend some money on local television ads. If the consultant is right, will advertising lead to an increase in quantity demanded?
Or a shift in the demand curve? Both? Neither? Explain your answer and make sure to cite at least one of the required readings in your answer. 2.
You are the owner of a furniture factory. You normally produce 100 pieces of furniture a day because that is how much you can produce given the amount of qualified workers in your town and the amount of reasonably priced wood that you can purchase locally. Then one day you get an order from a large national retail chain who wants to purchase 200 pieces of furniture a day from you. You are hesitant, as you will have to pay higher wages to get some qualified workers to move to your town. You also will need to pay higher prices for wood because you will no longer be able to rely solely on local suppliers and will have to spend more on shipping wood from other towns.
But you drive a hard bargain and the retail chain agrees to pay one and a half times your normal price. Does this situation describe a change in quantity supplied? A shift in the supply curve? Both? Neither?
Explain your answer and make sure to cite at least one of the required readings in your answer. 3. Suppose marijuana has just been legalized in your state. Nobody in your home town wants to start a marijuana business, as this would be too much of a stigma. But being an MBA student, you know a good business opportunity when you see one and decide to take a stab.
Shortly after starting up your business, you gain a loyal following of customers and start raking in some steep profits. However, the local government decides that they want a cut of your profits and starts charging a 20% sales tax on marijuana. Do you think this would lead to a 20% or greater loss in sales? Do you think marijuana in this situation would be facing inelastic or elastic demand? Explain your reasoning, and make sure to cite at least one of the required readings regarding elasticity.
Part B Quantitative Problem Suppose the demand function for a new smartphone can be expressed as QD = 1000 – 1.5P with QD being quantity demanded and P being price. The supply function can be expressed as QS = 50 + 2P Fill out the following table using the above equations: Price Quantity Demanded Quantity Supplied Surplus Amount or Shortage Amount Now answer the following questions: 1. What is the equilibrium price? You can compute this either using Microsoft Excel, or by using algebra from the equations above and solving for a price where quantity supplied equals quantity demanded. Show your work by either showing the algebra steps or by showing how you used Excel to calculate.
2. Suppose the supply function changes to 100 + 2P. What is the new equilibrium? Show your work by either showing the algebra steps or by showing how you used Excel to calculate. Assignment Expectations · Answer the assignment questions directly. · Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials. · For computational problems, make sure to show your work and explain your steps.
Paper for above instructions
Assignment SolutionPart A: Conceptual Questions
1. Impact of Advertising on Demand
Advertising can significantly impact both the quantity demanded and the demand curve itself. When a marketing consultant suggests that local television ads will increase sales, this likely indicates that the ads can enhance consumer awareness and interest in the pet shop's offerings. Specifically, advertising can shift the demand curve to the right, indicating an increase in overall demand at every price level. This is due to the fact that more consumers become informed about the shop’s products, which could lead to a higher willingness to purchase even at current prices.
According to Stengel (2012), a change in consumer preferences, influenced by effective marketing, can lead to a shift in the demand curve. This illustrates the distinction between quantity demanded and the demand curve itself; an increase in quantity demanded occurs as a response to a price change, while a shift in the demand curve signifies a change in demand due to other factors such as advertising (Stengel, 2012).
2. Change in Quantity Supplied versus Shift in Supply Curve
In the scenario described, the request from a retail chain to purchase 200 furniture pieces daily represents a situation where the factory owner faces an increased demand. Initially, the factory can produce 100 pieces due to the current constraints from available workforce and raw materials. However, accepting the retail chain’s order poses challenges that will influence production costs, such as higher wages and wood procurement costs.
This situation indicates a shift in the supply curve due to an increase in the cost of inputs, leading to a decrease in supply unless compensated by a higher price. In this case, when the retail chain agrees to pay 1.5 times the normal price, the owner may choose to increase production, thus representing a change in quantity supplied. According to Taylor (2014), an increase in the price offered can enhance the quantities that producers are willing to supply, leading to a movement along the supply curve (Taylor, 2014).
3. Elasticity of Demand and Sales Tax Impact
Regarding the introduction of a 20% sales tax on marijuana following its legalization, understanding demand elasticity is critical. Elastic demand implies that a consumer's purchasing decision is highly sensitive to price changes. Conversely, inelastic demand indicates that consumers will continue purchasing despite price fluctuations.
In this case, it's plausible to argue that marijuana may exhibit inelastic demand, particularly if consumers perceive it as a necessity or have few substitutes available. The increase in price due to tax may not cause a proportional decrease in sales. Citing Stengel (2012), when demand is inelastic, a rise in price does not lead to a corresponding drop in quantity demanded, thus one might expect that the loss in sales would be less than proportional to the tax rate (Stengel, 2012).
Part B: Quantitative Problem
Given the demand function \( QD = 1000 - 1.5P \) and the supply function \( QS = 50 + 2P \):
1. Equilibrium Price Calculation
To find the equilibrium price, we set \( QD = QS \):
\[
1000 - 1.5P = 50 + 2P
\]
Rearranging yields:
\[
1000 - 50 = 1.5P + 2P
\]
\[
950 = 3.5P
\]
Thus,
\[
P = \frac{950}{3.5} \approx 271.43
\]
Next, substituting \( P \) back into the demand function to find \( Q \):
\[
QD = 1000 - 1.5(271.43) \approx 1000 - 407.145 \approx 592.855
\]
Hence, the equilibrium price is approximately \( 271.43 \) and the equilibrium quantity is approximately \( 593 \).
2. New Equilibrium with Adjusted Supply Function
Now let's consider a new supply function \( QS = 100 + 2P \). Setting \( QD \) equal to the new \( QS \):
\[
1000 - 1.5P = 100 + 2P
\]
Rearranging yields:
\[
1000 - 100 = 1.5P + 2P
\]
\[
900 = 3.5P
\]
Thus,
\[
P = \frac{900}{3.5} \approx 257.14
\]
Substituting \( P \) back into the demand function:
\[
QD = 1000 - 1.5(257.14) \approx 1000 - 385.71 \approx 614.29
\]
The new equilibrium price is \( 257.14 \) and the new equilibrium quantity is approximately \( 614 \).
References:
1. Stengel, D. (2012). Managerial Economics Principles. Flat World Education.
2. Taylor, T. (2014). Principles of Microeconomics. OpenStax College.
3. Tabarrok, A., & Cowen, T. (2015). The Demand Curve. Marginal Revolution University.
4. Tabarrok, A., & Cowen, T. (2015). The Supply Curve. Marginal Revolution University.
5. Mankiw, N. G. (2021). Principles of Economics. Cengage Learning.
6. Pindyck, R. S., & Rubinfeld, D. L. (2017). Microeconomics. Pearson.
7. Krugman, P., & Wells, R. (2018). Microeconomics. Worth Publishers.
8. Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W.W. Norton & Company.
9. Parkin, M. (2014). Microeconomics. Addison-Wesley.
10. Hubbard, R. G., & O'Brien, A. P. (2018). Economics. Pearson.