Explain Microeconomics and its Demand

Questions: 1.Explain, with the use of demand and supply diagram(s), the difference between a change in quantity demanded of hats and a change in demand for hats. 2.Explain, with the use of demand and supply diagrams, the effect of the following events on the market for solar panels: (a) The price of solar panels has fallen to below the market equilibrium price.(b) The price of electricity for an average household has increased by 50 percent.(c) New technology has increased the productivity of solar panel producers.3. Assume new medical research has proven that consuming oranges will prevent heart attacks, whilst at the same time, a typhoon destroys 60 percent of the orange crop. Explain, using demand and supply diagram(s), the impact on the equilibrium price and quantity in the market for oranges? 4. If the price of a good increases from $6 to $9, leading to a fall in quantity demanded from 55 to 35 units, what is the price elasticity of demand for the good at this price range? Interpret the calculated elasticity value and explain the impact of the price rise on total revenue. 5. Higher education benefits society as a whole. Discuss two (2) measures a government can implement to increase the demand for higher education. Explain, with the use of demand and supply diagram(s), the impact of the suggested government measures on the equilibrium price and quantity of higher education. 6. Assume the government has removed all entry restrictions in an industry where the existing firms are making an economic profit. Explain, with the use of demand and supply diagram(s), the impact of the government measures on the profit of firms in the industry. 7. Critically examine, using the game theory matrix diagram and relevant assumptions, why there is a lack of price competition between the main banks in Australia. In your answer, evaluate both the collusive and non collusive scenario. What are the alternatives available to banks to maintain or increase their market share? Answers: 1. There are two graph represents change in quantity demanded shown in figure 1 and the change in demand in figure 2 respectively. These two particular terms have different types of meaning in economics. As shown in figure 1, it can be made out that the change in quantity demand of a product can lead to change of the price of the product (Mankiw, 2007). For example, the quantity demand of hats increases if the price decreases as shown in figure 1. On the other hand, the change in demand can affect the change in quantity demanded. For example, the change of demand of the consumer can change the demand graph. This happens because the change in price causes the change in the products demand. 2. Figure 3 a) Market equilibrium price is a certain price of a particular product when the price does not tend to change on a frequent basis. Now, if the price of solar panels has fallen to below the market equilibrium, price, from figure 3 it can be said that the demand quantity of the solar panels are greater than quantity supplied (Perloff, 2004). It also signifies that there will be possibilities of price hike of the solar panels in the market of solar panels as shown in figure 3. b) If the price of electricity for an average household has increased by 50 percent then in the market of solar panels the can increase. The quantity demand for solar panels will also see a jump from the past. If the supply remains good the price will not change radically but if the supply demand ration is not met properly that can cause change in the prices of the solar panels in the market. In figure 3 it can be understood properly. c) Now if new technology has increased the productivity of solar panel producers that suggests there will be ample supply of the product and no shortage of it can be found. In that case the prices will drop significantly in the demand remains the same. However, if the demand picks up the prices of the product might not face a drastic slip down. In figure 3, one can see that if there is surplus of a product then the prices will see a down fall. 3. Figure 4 Now, one has to discuss this question by looking at two things simultaneously. Providing the fact that medical research has shown that orange consumption will prevent heart attacks then there will be certain jump in the demand of oranges can be observed (Pindyck and Rubinfeld, 2005). On the other hand at the same time as typhoon destroys 60 percent of the production of oranges, there will be a supply issue in the market. As shown in figure 3 and 4, there is a relation between supply demand if the supply decreases and demand increases at the same time there will be price hike of oranges. That suggests the market equilibrium price will go down. But as the prices will go up therefore the quantity in the market of the oranges will decrease. 4. Past Present % change Price 6 9 50 Quantity demanded 55 35 36.36364 Price elasticity = percentage change in quantity demanded/ Percentage change in price = 36.36/50= 0.7272 As the quantity demanded decreases at high rate with the rise in the price of the product, the revenue earned from the product decreases. If the price elasticity is high, the revenue earned from the product seems to decrease. Therefore the total revenue earned from the product decreases (Sloman and Sutcliffe, 2003). 5. To increase the demand for higher education in the society the government can take several measures. First of all government can come out with a modal that can suitable for the students to compete the students of the outer world. Secondly, the cost of the higher education should be taken under consideration to attract more and more students (Krugman and Wells, 2006). Besides, the structure of the course should be job oriented so the students can find it easy in work places. As shown in figure 3, if government comes out with prolific measures to promote higher studies the growth of the market will certainly extend to some extent (Krugman and Wells, 2005). Therefore, as we can see the growth brings demand and demand brings sales. Therefore, the market will be more beneficiary. As the sale is improved the profitability will certainly improve. As government measures will certainly bring down the education cost of the students therefore the market equilibrium price will go upwards and thus the quantity of higher education will be increased significantly. 6. Figure 5 Now as it is said in this question, if the government has removed all entry restrictions in an industry where the existing firms are making an economic profit significantly then there will be a certain impact on the profit firms in that particular industry. As shown in the above figure 5, due to the government measures more companies will able to take part in the particular market and therefore there will be a huge supply of products. But as the consumers are not increases significantly therefore the demand does not grow compare to the supply. That is why the price of the product will be going down to a certain extent. As a result the profit of the firms will decrease due to surplus of product. 7. It has been found that the banks performing in the Australian market performs in a highly competitive market that forces the Banks from not increasing or changing the price. If any of the Bank changes the price, it will face a high change in the quantity demanded of the services provided by them. This can effect adversely for the Banks (Abel and Bernanke, 2001). Therefore the bank lacks a price competition in the Australian market. Banks can use alternative methods for attracting customers by providing them with better services and attractive offers. This would help the banks to gain a good market share in the highly competitive market of Australia. Hence, it is recommended for the Banks to choose alternative methods to increase the market share. References Abel, A. and Bernanke, B. (2001).Macroeconomics. Boston: Addison-Wesley. Krugman, P. and Wells, R. (2005).Microeconomics. New York: Worth. Krugman, P. and Wells, R. (2006).Economics. New York: Worth Publishers. Mankiw, N. (2007).Macroeconomics. New York: Worth Publishers. Perloff, J. (2004).Microeconomics. Boston: Pearson Addison Wesley. Pindyck, R. and Rubinfeld, D. (2005).Microeconomics. Upper Saddle River, N.J.: Pearson Prentice Hall. Sloman, J. and Sutcliffe, M. (2003).Economics. Harlow, England: Prentice Hall/Financial Times.