Module - Case Assignment: 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:

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.

For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the "Writing Style Guide," which is found under "My Resources" in the TLC Portal.

Module - SLP: SUPPLY AND DEMAND

For the SLP this session, come up with an idea for a business you would like to start someday. This should be a business in an industry that you are familiar with and can find a lot of information about. This could be a type of business that you are currently working for or have worked for in the past, or a type of business that you are a frequent customer of. Finally - since you will have to make estimates about costs of starting up the business or what type of price you can charge, it is best to keep your business idea relatively simple.

For this first SLP, discuss your business idea and do some initial research on what prices your potential competitors in your home town are charging. More specifically, write a three-page paper discussing the following issues:

1. What business do you want to start, and why? Explain your personal connection to this type of business and discuss sources of information about this business that you plan to use for your SLP.

2. What prices are these businesses in your chosen industry charging? Try to get at least ten examples of businesses and the prices they are charging, and create a table that lists the prices and any other relevant information, such as whether the product they sell is high-end quality or lower-end quality.

3. Do you notice a large range of prices that businesses are charging for the service or product? If so, what factors do you think explain the range of prices? Is it the quality of the product or service, location of the business, amount of advertising done by each business, other?

Based on your answers to Questions 1 and 2 above, do you think your product or service will have elastic or inelastic demand? You don't have to do any calculations since you probably won't have access to sales data on the businesses you are looking at - but based on the range of prices, you should be able to get an idea about how sensitive consumers of your product or service will be to changes in price. In addition to your own research about prices in your home town, cite some of the required background reading on elasticity to justify your answer.

SLP 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.

• Make sure to use reliable and credible sources as your references. Articles published in established newspapers or business journals/magazines are preferred. If you find articles on the Internet, make sure they are from a credible source.

• Reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11- 14 on in-text citations. Another resource is the "Writing Style Guide," which is found under "My Resources" in the TLC Portal.