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ECO201E Managerial Economics Assignment

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Question:

(a) Determine the equilibrium market price, quantity, and consumer and producer surplus in the market for dental services. Illustrate these on a well-labelled graph. Hint: In computing the market supply of dental services, review your course materials on how to combine the supply provided by each individual dentist to form a market supply curve.

(b) The Clementimah Dental Council sets prices at $60 per quantity and all dentists charge this price. What is the market quantity, and the consumer and producer surplus? Illustrate these on a well-labelled graph. Discuss and explain the effects on welfare (surplus) compared to the market equilibrium in.

 

 

Answer

In this paper, focus shall be put on the examination of question two of the assignment together with its subsections

Question

Equilibrium mark price occurs where Market demand equals to market supply (Gallice, 2018).

N=10

(0.5p-20)10=200-3p

0.5p+3p=20+200

3.5p=220

P=$50

Therefore, the equilibrium market price is 50.

 

Hence the equilibrium quantity will be;

From; Q=200-3p

        Q=200-3(50)

        Q=50 units

The equilibrium market quantity is 50 units (Gallice,2018).  

The consumer surplus and producer surplus

CS= ½(base*height)

     =1/2(50*16.67)

     =833.5 units

Thus the consumer surplus is 833.5 units.

Producer surplus ( Jek and Tan,  2010).

PS=1/2(base*height)

PS=1/2(50*10)

PS=250 units; therefore, the Producer surplus is 250 units.

  1. From

Qd =200-3P

     =200-3(60)

     =20 units. Therefore, the market quantity is 20 units at the market price of $60

Consumer and producer surplus

Consumer surplus

CS= 1/2(base*height), Area of A

CS=1/2(20*6.67)

CS=66.7. Therefore, the new Consumer surplus is 66.7 units.

Producer surplus

PS= (10*20) +(6*20) +(1/2(4*20)), B+C+D

PS=360 units. Therefore, the new Producer surplus is 360 units.

The consumer surplus reduced since there is an increase in the price set by the Clementimah council ( Jek and Tan,  2010).

A reduction in consumer’s welfare affects customers negatively as demand is reduced for services. On the other hand, the producer surplus increases (Gallice, 2018).

Quantity demanded at price of $60 is obtained as follows;

From; Q=200-3P, where P=$60 then

Q=200-3(60)

Q=20 units as the quantity demanded at price of $60.

Therefore, the number of dental licenses will be;

5P-200-Q=20

5(60)-200-20=Q

Q=80 units.

The number of dental licenses that produces a supply curve of price $60 is 80 units.

In price setting system, the prices are determined by the forces of demand and supply ( Jek and Tan,  2010). When demand equals supply, there is efficient use of resources .Therefore, for dentists to recover their costs of training there has to be price setting which allows them to buy many services from the council and hence earn more profits. In doing this supply will equal to demand hence maximizing the profits at a given price level ( Jek and Tan,  2010).

The past case competition regulations in Singapore involving anticompetitive conduct are as follows;

  1. Agreements, decisions and practices that prevent, restrict or distort competition
  2. Abuse of a dominant position
  3. Mergers that substantially lessen competition.

Much as there is competition regulation in Singapore, the competition commission has ruled against the industry by not allowing them to form cartels and merge as a single industry ( Jek and Tan,  2010). With this, they only earn normal profits less than they would have earned if they are monopolies. The main economic reason for the competition commission’s ruling is to keep prices for the products stable and not to cause inflation in the country (Gallice, 2018). A short appeal against the competition commission’s ruling is that the government of Singapore should not put restrictions on industries because these restrictions could act as a block to new entrants. Therefore, the competition commission ruling shouldn’t enforce these regulations against new upcoming industries but do so to old and high profited industries ( Jek and Tan,  2010).

 

References

Andrea, Gallice. (2018). Social status, preferences for redistribution and optimal taxation: a survey. Economics Discussion Papers, No2018-31, Kiel Institute for the World Economy. https://www.economics-ejournal.org/economics/discussionpapers/2018-31

Aun Long, Jek and  Danny Tan. ( 2010). "The growth of the private wealth management industry in Singapore and Hong Kong" (PDF). Capital Markets Law Journal. 6 (1): 104–126. doi:10.1093/cmlj/kmq022. Retrieved 18 April 2013.

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