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# BEO1105 Economic Principles

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## Questions:

### Question: 1

Using demand and supply graphs illustrate and explain the difference between a change in quantity demanded of hats and a change in demand for hats. In your answer explain two factors that will result in the change in demand for hats.

### Question: 2

Using demand and supply graphs illustrate and explain the effect of the following events on the market for solar panels (assume ceteris paribus). In your answer, include an explanation of the market adjustment process.

(a) The price of solar panels is above the market equilibrium price.

(b) The price of electricity for an average household has decreased by 50 percent.

(c) The number of solar panel producers have increased by 50 percent.

### Question: 3

The demand for watermelon, which is harvested in summer, is highest during the summer months and lowest during winter months. Yet watermelon prices are normally lower in summer than in winter. Use demand and supply graphs to illustrate and explain how this is possible. Clearly indicate the equilibrium price and equilibrium quantity in your graph.

### Question: 4

Ceteris paribus, at the same time when the demand for yoga services has increased the government has also introduced strict regulations that has resulted in a fall in the number of yoga providers. Using demand and supply graphs illustrate and explain the impact on the equilibrium price and quantity in the market for yoga services?

### Question: 5

In 2003, when music downloading first took off, Universal Music slashed the prices of a CD from an average of \$21 to an average of \$15. The company said that it expected the price cut to boost the quantity of CDs sold by 40 per cent, other things remaining the same.

(a) What was Universal Music's estimate of the price elasticity of demand for CDs?

(b) Given your answer in (a), If you were making the pricing decision at Universal Music, would you cut the price, raise the price or not change the price? Explain your decision.

### Question: 6

Assume the government has removed all entry restrictions in an industry resulting in the creation of a perfectly competitive market structure. Using demand and supply graphs and cost curves illustrate and explain how this move will impact on the long run profit of these firms.

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