QUESTION 1
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.
NOTE: IN EACH OF YOUR ANSWER EXPLAIN THE MARKET EQUILIBRIUM ADJUSTMENT PROCESS.
QUESTION 2
Ceteris paribus, at the same time when demand for yoga services have increased the government has introduced strict regulations on yoga providers, resulting in the decrease in the number of yoga providers. Using demand and supply analysis what will be the impact on price and quantity in the market for yoga services.
(HINT: THERE ARE 2 SCENARIOS WORKING AT THE SAME TIME)
QUESTION 3
The outbreak of Bird Flu in 1997 resulted in the Hong Kong government ordering the culling of more than 1.5 million chickens. The culling of chickens was simultaneously accompanied by consumers reducing their demand for life chickens due to the bird flu. Using demand and supply analysis, what was the impact on price and quantity in the market for life chickens?
(HINT: THERE ARE 2 SCENARIOS WORKING AT THE SAME TIME)
QUESTION 4
Assume the price of a good increase from $6 to $8, leading to a fall in quantity demanded from 50 to 40 units. Calculate the price elasticity of demand for the good at this price range and explain how total revenue will be impacted by the increase in price?
QUESTION 5
Assume, in an industry where there are no barriers to entry and firms are making an economic loss in the short run.
a) What options are available to firms in the short run to minimise their losses?
b) Using demand and supply analysis together with the cost curves, explain why the actions to minimise loss lead to firms' making normal profit in the long run?
QUESTION 6
In a market structure where firms are mutually interdependent, price competition is not common. Explain using the game theory matrix, with relevant assumptions, how firms make decisions when they behave collusively and non-collusively. In the absence of price competition, how do firms maintain or increase their market share?
Jesse Singh (April 2016)