The Quantity Demanded and Supply at Given Prices - Assignment Example

Economic questions: Question 4: The following table summarizes the quantity demanded and supply at given prices: Price quantity demanded quantity supplied 100 770 220 140 680 260 180 610 320 220 550 400 260 500 500 300 460 640 340 400 880 380 320 1400 The following chart summarizes the demand and supply curve: Question 5: Equilibrium price and quantity: The equilibrium price is determined by the point where the supply curve and the demand curve intersect, at this point the quantity demanded and supplied are equal, from the chart the equilibrium price is 260 and the equilibrium quantity is 500. Question 6: Profit and loss at equilibrium price and quantity: Profit is determined by subtracting total production cost from total revenue, The total revenue is determined as follows: Total revenue = price X quantity The total production cost is determined as follows Total production cost = fixed cost + variable cost Where variable cost = per unit production cost X quantity At equilibrium price: Quantity = 500 Price = 260 Total revenue: Total revenue = price X quantity Total revenue = 260 X 500 Total revenue = 130000 Total production cost: Fixed cost = 12,000 Production cost per unit = 180 Total production cost = fixed cost + variable cost Total production cost = 12,000+ (500 X 180) Total production cost = 102000 Profit: Profit = total revenue – total production cost Profit = 130000– 102000 Profit = 28000 Question 7: Quantity demanded of tables increases by 180 at each price level: The following table summarizes the new quantity demanded: Price quantity demanded new demand 100 770 950 140 680 860 180 610 790 220 550 730 260 500 680 300 460 640 340 400 580 380 320 500 The following chart summarizes the old demand curve, the new demand curve and the supply curve From the above diagram it is evident that the new equilibrium price is 300 and the equilibrium quantity is 640. Factors that may lead to an increase in demand: In our case there are some factors that may have led to the increase in demand given that prices remain the same, they include: Increase in income: An increase in consumer disposable income will lead to an increase in demand, for this means that individuals will demand more goods when they experience an increase in income. Rise in price of substitute: If this good has a substitute and the price of that substitute increase then the demand for this particular will increase, individuals in the market will want to increase their real income by purchasing the less expensive good. Expectations: If consumers in the market expect prices to rise in future for this particular good then they will purchase more today in order to avoid high prices in the future. Question 8: Revenue at the new demand: Given that Total revenue = price X quantity The following table summarizes the revenue at all prices: Price new demand new revenue 100 950 95000 140 860 120400 180 790 142200 220 730 160600 260 680 176800 300 640 192000 340 580 197200 380 500 190000 Question 9: New profit levels at the new equilibrium price and quantity: Profit is determined by subtracting total production cost from total revenue, The total revenue is determined as follows: Total revenue = price X quantity The total production cost is determined as follows Total production cost = fixed cost + variable cost Where variable cost = per unit production cost X quantity At equilibrium price: Quantity = 640 Price = 300 Total revenue: Total revenue = price X quantity Total revenue = 300 X 640 Total revenue = 192000 Total production cost: Fixed cost = 12,000 Production cost per unit = 180 Total production cost = fixed cost + variable cost Total production cost = 12,000+ (640 X 180) Total production cost = 127200 Profit: Profit = total revenue – total production cost Profit = 130000– 102000 Profit = 64800 Question 10: The following table summarizes the sales budget for the month of Jan to June sales budget Jan 500 Feb. 550 march 600 April 600 may 600 June 550 Revenue budget: Total revenue = price X quantity The following table summarizes the sales revenue budget given that price = 300 sales budget sales revenue Jan 500 150000 Feb. 550 165000 march 600 180000 April 600 180000 may 600 180000 June 550 165000 Production cost budget: Fixed cost per month = 1,000 Production cost per unit = 180 Total production cost = fixed cost + variable cost The following table summarizes the results: sales budget fixed cost production cost per unit production cost budget Jan 500 1000 180 91000 Feb. 550 1000 180 100000 march 600 1000 180 109000 April 600 1000 180 109000 may 600 1000 180 109000 June 550 1000 180 100000 Profit budget: Profit = total revenue – total production cost The following table summarizes the profit budget for the months: sales revenue production cost budget profit budget Jan 150000 91000 59000 Feb. 165000 100000 65000 march 180000 109000 71000 April 180000 109000 71000 may 180000 109000 71000 June 165000 100000 65000 Question 11: Increase in supply: Supply will increase due to a number of factors and this include an increase in prices in the market and reduced production costs that will enable firms to produce more at lower costs. From our data we assume that quantity supplied increases by 100 at every price, the following table and diagram summarizes the results: Price quantity demanded quantity supplied new supply 100 770 220 320 140 680 260 360 180 610 320 420 220 550 400 500 260 500 500 600 300 460 640 740 340 400 880 980 The following diagram demonstrates the new supply curve From the above diagram it is evident that an increase in supply shifts the supply curve upwards. Question 12: Government contractionary monetary and fiscal policy: Monetary policies: Contractionary monetary policy involve the reduction of money supply in the economy, this involves increasing interest rates in order to reduce money supply. The other way is to reduce money supply in the economy directly by reducing currency. Contractionary monetary policy will increase the cost of borrowed funds and this may reduce the profitability of a business due to increased production costs. This policy will also discourage new investment due to the high cost of borrowed funds, finally individuals in the economy will not have excess money that may be borrowed in order to purchase products and this will result into a decline in demand for products. Fiscal policy: Contractionary fiscal policy involves the reduction of government spending in the economy, reduced government spending results into a decline in employment and therefore per capita income declines, lower employment that lead to reduced income levels will reduce demand for goods and services affecting the business environment by reduced demand of goods and services. Question 13: High inflation and unemployment in UK and sales in UK and abroad: Inflation High inflation means that there is an increase in the prices of all products in the economy are rising, this increase in the products will affect the production cost of business resulting from increased input prices. This means that the price of these products will increase meaning that this product cost will be higher than in other countries and this will reduce demand abroad and in the UK therefore there will be less exports and lower local demand. Unemployment: High unemployment levels in the economy will affect the demand for goods and services in the UK, there will be a decline in demand due to lower per capita income in the UK. Exports will however increase because the cost of production is lower than in other countries, with high unemployment levels wages are expected to be lower than in other countries reducing cost of production, therefore there will be an increase in exports. Question 14: Increase in the value of Euro against the Euro: Assuming that we import raw materials from other countries and the value of the pound appreciates than this will affect the value of raw materials produced, this will reduce the cost of imported goods and therefore help improve the prices by lowering production cost, therefore the price of products will decline, however in the international market the products will be more expensive. Therefore local demand will increase but exports will decline due to higher price value of the products in markets abroad. Question 15: Unemployment in the UK: The following chart summarizes the unemployment rate in the UK data from national statistics website: From the above chart it is evident that unemployment level has been declining over the years, however unemployment rate has increased in the last 3 years; unemployment rate declined from the year 1998 to 2005 where unemployment rate started to increase. In the recent few months however the unemployment rate has also been increasing References: National statistics (2009) unemployment rates in the UK: time series data, retrieved on 1st May, available at http://www.statistics.gov.uk/StatBase/TSDdownload1.asp Phillip Hardwick (2002) introduction to modern economics, McGraw Hill Press, New York Read More