Written Assessment

Written Assessment

Written Assessment

Question 1

Part A

And (ii)

(iii) At $6 the market is in equilibrium where the demand and supply curve intersects. It is the point at which quantity demanded is equal to the quantity supplied are equal. It Is the point at which quantity demanded by the consumer is equal to the quantity supplied by the supplier. This is often called the equilibrium price. Here the consumer is indifferent as to how much quantity he should buy at a given price.

(iv)If the price was set at $3 the quantity supplied by the supplier was 80 and the quantity demanded by the consumer would be 180. Here quantity demanded is more than the quantity supplied.

(v) As the demand increases by 40 cases per day we can see that the demand curve has shifted upward. Now at price $7 the quantity demanded has increased to $60 from $20.

(vi) The effect of the subsidy provided by the government to the supplier or producer brings the market supply curve downward by the amount of subsidy. We can say this increases supply. The impact of subsidy decreases prices of consumer and increases process received from producer.

Part B

Cross elasticity of demand= % change in quantity Demanded of product 1=%change in price of product 2 Cross elasticity of demand= (900-1000)/ (1.8-1.6) =-10/13=-80%

Cross elasticity of demand= (2500-2000)/ (1.8-1.6) = -20/13=-160%

Income Elasticity = %change in quantity demanded= %change in real income

=15%/10%= 1.5

Income elasticity of demand is the responsiveness of the good with respect to the change in income. In this case as the income increases people increased their demands for health care. Hence the income elasticity in this case is 1.5

Part C

(i)

Question 3

Perfect competition is a form of market where the collective demand and supply forces determine the equilibrium market price (Baumol 2006). In other words, perfect competition is a type of market structure where the market behavior of buyers and sellers is to adapt to an equilibrium state of market conditions. Perfectly competitive markets have the following characteristics:

There are practically unlimited number of buyers (demanders) and sellers (producers or suppliers) in the market.

Since this market will be characterized by a large number of small market vendors, price will not be controlled and altered. Suppliers and producers, therefore, will be price takers.

Large number of buyers and sellers would imply that individual decision to impact demand or supply will be of negligible importance in the global market. A firm will not be able to offer its product on other-than-market price because consumers will move to a producer following the market price. The market product is homogeneously produced and supplied. Since producers want to stick to the one and the only market price, their product standard is the market standard, or the industry standard. Consumers remain indifferent as to what seller to choose from when buying the product. This means that the product of one company is a perfect substitute of the product of other company.

Consumers and producer have perfect market information when making ...