Effects of Demand and Supply Economic Questions
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Principles of Economics
(ECON1008)
Due Date:
Sunday 28 November 2021 (11.55pm South Australia time)
Word Limit:
1000 (+/- 10%) (includes all words and references)
Read the article written by ABC Rural / By Jennifer Nichols and Ashleigh Bagshaw (Sun 26 Sep
2021)
Pineapple growers want you to carve some ‘spooky fruit’ to stop bumper crop going to waste
Answer all the questions.
Answers are based on the concepts and economic models(graphs/diagrams) covered in
ECON1008.
Additional Information
1.Question-Answer format is acceptable.
2.Answer each question separately.
3.Make sure to fully label diagrams; and clearly indicate changes you make to
economic models(graphs).
4.Specify any assumptions you make and use a clear, concise and coherent set of
arguments in your discussion/analysis.
5.There is no need to provide actual data/numbers as this is a conceptual exercise.
6.No additional research required.
7.Submit your assignment in a Word file (PDF or other format is not acceptable).
Structure
Question 1
Question 2
Question 3
Referencing List
Question 1
Using demand and supply diagram, explain what it means when Growers say they are hurting from a COVIDrelated slump in sales due to cancelled cruises, fewer flights and lockdowns cutting into restaurant, cafe and
restaurant trade.
Your answer needs to clearly discuss the impact on market equilibrium price and quantity.
[6 marks]
Identify key concepts and provide definition.
price
pineapple market
S
Identify and discuss key issue and analyse the
change
Illustrate change on the diagram
Link to the determinants of demand/supply
Pe
Explain the equilibrating process
Describe the diagram in your answer
D
Qe
quantity
Discuss the outcome on equilibrium price and
quantity
Dont forget to mention any assumptions you
made.
Question 1
Using demand and supply diagram, explain what it means when Growers say they are hurting from a
COVID-related slump in sales due to cancelled cruises, fewer flights and lockdowns cutting into restaurant,
cafe and restaurant trade.
Your answer needs to clearly discuss the impact on market equilibrium price and quantity.
[6 marks]
price
pineapple market
Start the market at equilibrium.
S
Read the question/article
What is the change(s) mentioned? Assume ceteris
paribus (all else remains constant)
Is the change related to demand (taste/preference;
income; prices of substitutes; expected future price;
number of buyer)?
Pe
D
Is the change related to supply (cost of production;
productivity; number of sellers; expected future price)?
Show the change in the diagram
Qe
quantity
Question 1
Using demand and supply diagram, explain what it means when Growers say they are hurting from a
COVID-related slump in sales due to cancelled cruises, fewer flights and lockdowns cutting into restaurant,
cafe and restaurant trade.
Your answer needs to clearly discuss the impact on market equilibrium price and quantity.
[6 marks]
price
pineapple market
After the shift of the curve, will there be a shortage or
a surplus?
S
What will happen to price?
What is the final outcome on equilibrium price and
quantity?
Pe
D
Qe
quantity
Steps
Question 1
Start diagram with market at equilibrium. Assume market is at equilibrium where Qd = Qs (no
shortages and surpluses)
Identify the change(s) mentioned and assume ceteris paribus (all else remains constant)
Identify which curve(s) will be affected and relate it to the determinants/variables of
demand/supply
will curve(s) shift left/right?
Equilibrating process => after the curve(s) has shifted, will there be shortage/surplus.
Shortage => price will have to rise
Surplus => price will have to fall
Outcome => identify the new equilibrium price and quantity
Important to describe the diagram (eg increase in demand will shift the curve to the right from D
to D1 etc
)
Question 2
Using determinants of price elasticity of demand, explain whether demand for pineapple is elastic or
inelastic.
[4 marks]
Identify key concepts and provide definition.
Identify the determinants of price of elasticity of demand and apply to demand for pineapple.
? Availability of close substitutes (lots or few)
? Definition of the market:
? Broadly defined
? narrowly defined
? Luxury or necessity
? Portion of income/consumers budget spent on it
? Passage of time
Make the conclusion by supporting your answer with as many of the determinants as possible.
No calculations required
Refer to pages 102-105 of the textbook
Question 3
Assume pineapples are sold in a perfectly competitive market that is currently at equilibrium and pineapple
firms are earning zero economic profit. Explain and illustrate graphically, how the change in market condition
as discussed in Qs 1 will affect the firm in the short run.
(Hint: You must show both the market and firm diagram)
[6 marks]
? Explain perfect competitive market
? Start the market diagram at equilibrium
? Start the firms diagram with the firm at breakeven (P=ATC) and provide explanation for the diagram
explain how firm determines price and profit maximising output.
? Clearly label the diagram (D, MR, MC, ATC, Q, P)
? Analyse and explain how the change in market condition as discussed in Qs 1 will affect the market and the
firm in the short run.
? Illustrate and describe the change(s) on the diagrams.
? Which curve(s) will be affected by this change? Check the labelling again.
? How will this impact price, output and profit/loss (shade the area) of the firm (you can support with
numerical example)
Diagram
pineapple market
Market diagram
–
Start diagram as above (with price already
increased).
pineapple firm
Firms diagram
–
Start with firm making zero economic profit
–
Put in the ATC curve
Question 3
Steps to draw diagram for firm
1. Price: this is from the demand curve (D)= AR
2. Q* : profit maximizing output (MR = MC)
3. ATC : (this will help firms determine if it is making profit/loss)
? profit (Revenue > Cost). Hence, ATC curve must lie below P at Q*.
? loss (revenue < cost). Hence, ATC must lie above P at Q*
? breakeven (revenue=cost). Hence, ATC and P is at the same point at Q*.
4. Check that MC goes through minimum ATC
Purchase answer to see full
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Explanation & Answer:
900 words
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government policies
Effects of demand and supply
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