EC1108 Skills for Economics – Supply & Demand Analysis

Question 1

Your answer to this question should include one diagram in Excel.

(a) Using the following information on the supply and demand for mobile phone covers draw the demand and supply diagram for mobile phone covers using Excel. Please ensure that the diagram is drawn and labelled correctly.

• The diagram should include a chart title, and axis titles. The chart title should be The Market for Mobile Phone Covers.
• The diagram should not include any gridlines, and the demand and supply curves should be labelled as outlined in the recordings on Canvas.
• The equilibrium price and quantity should be illustrated and labelled in the diagram.

(b) An increase in the population results in an 8,000 increase in the quantity demanded at each price level. Illustrate the impact of this on the market using the diagram you drew in part (a). Illustrate and label the original and new equilibrium price and quantity in the diagram.

(c) Copy your graph into your Word document and write a short note to explain how the change in demand impacts on the market for mobile phone covers.

Question 2

(a) Using the information below draw the Production function in Excel. The diagram should be labelled correctly and should not include any gridlines or legends.   The diagram should include the following chart title Production Function.

(b) Copy your graph into your Word document and answer the following questions. What type of relationship exists between the two variables.  What can you say about the slope of the curve?

Question 3

In this question, you are required to apply your knowledge of Microeconomics.  In particular, you are required to apply your knowledge of the determinants of demand and supply and how a change in those determinants impacts on the supply and demand curves.

Using three separate supply and demand diagrams drawn in Word illustrate and explain the impact of each of the following events on the market for Irish tomatoes.  What happens to the equilibrium price and quantity of Irish tomatoes?  To answer this question, you should use general demand and supply diagrams without figures.  Your initial equilibrium price and quantity should be labelled as P_e and Q_e.  Your new equilibrium price and quantity following the event should be labelled P₁ and Q_1.

• The cost of running tomato green houses falls due to a decrease in electricity prices.
• Consumer income decreases.
• A report is published saying that tomatoes contain lots of antioxidants and are good for your health and the number of Irish tomato producers increases.

Experts Answer on Above Questions on MicroEconomics

Market equilibrium

The equilibrium values as given are the equilibrium price is €30 and equilibrium quantity is 12000 units. The Excel chart as included in the appendix section source quantity in x-axis and type in y axis and the market equilibrium point is E(€30, 12000).

Increase in demand

The data as given indicates that there is an increase in the quantity demanded by 8000 at each price level. As a result the new demand with supply at price €40 is 16000 as new quantity demanded and 1600 as quantity supplied. The new equilibrium is therefore at price €40 and quantity 16000.

This implies that an increase in the population raises demand by 8000 units which shifts the demand curve to the right. There is no impact on the supply in the short run and the market adjusts through a higher price there by encouraging producers to supply more units.

Production function

The charts included in the appendix is a scatter with smooth lines type chart with number of workers on x-axis and total output per day on y-axis.
The relationship when the labour and output is identified as positive, because with including more workers, the total production also increases. The slope of the curve is flatter as more workers are employed because the contribute progressively less extra output. This clearly shows the laws of diminishing marginal return where by the output edit by each additional worker is lower then the previous one.

Electricity prices fall

The fall in the electricity prices, the supply curve shifts rightwards. This is mainly because the lower electricity cost produces the greenhouse production cost and as a result, producers can supply more tomatoes at every price. The price falls and the quantity increases.

Consumer income decreases

It is assumed that the tomatoes are normal good, and the demand curve shift left from D to D1. This is mainly because the purchasing power of consumer decreases with lower income, and their by results in a decrease demand for Irish tomatoes.

Health report + more producers

The event on source that the consumers are encouraged through the health report to buy more tomatoes which shift the demand curve right. The second event shows that more Irish producers enter into the market which shifts the supply curve rightwards.

Want Detailed Answers with References?

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