Economic Coursework: Demand, Costs, Supply, and Market Structures

Question 1

This coursework contains a series of questions. Please complete all the questions utilising economic concepts, models and wider reading. There is no specific format required i.e. report or essay format, please note the question that you are addressing and provide an answer to the question.

The word limit of this coursework i.e. completion of all questions is 2000 words (excluding graphs, tables and references).

Question 1

In this question assume the role of a consultant who has been hired to advise a relatively new company that makes virus and malware protection software for Personal Computers (PCs) and Laptops that use Windows operating software. Using your knowledge of Demand address the following questions. All answers provided must be justified. Be sure to utilise relevant graphs and wider reading to support your answers. (Note only consideration of the demand curve is required for these questions).

The Owners of the company noticed some recent changes in the market. For each of the noted changes explain the likely effect on the demand of the protection software.

1. 1. Increases in the prices of Laptops
   2. Decreases in the price of relative software made by a rival company
   3. Increases in the stories published about hacker attacks on PCs and Laptops through viruses and malware

The Owners share data they have gathered regarding their attempts to change prices and prices changes of potentially related products. The Owners charge a monthly rate for their software and allow the customer to stop usage at any time as long as they give a one month notice. A sale is classified as someone paying for the software in a month. Using your knowledge of Elasticity, identify/solve relative elasticities, interpret the answer and provide any applicable advice to the company. (Please give numerical answers to 2 decimal places)

When the Owners changed the fee for their standard virus protection software from £8.99 per month in Quarter 1 to £5.99 per month Quarter 2, sales changed from 10500 in Quarter 1to 11000 in Quarter 2. Calculate the price elasticity of demand between Quarter 1 and Quarter 2. What suggestions would you make to the Owners regarding changing their prices given your answer?  

When the Owners changed the fee for their online gaming specialist virus and malware protection software from £10.99 per month in Quarter 1 to £12.99 per month Quarter 2, sales changed from 12000 in Quarter 1 to 9000 in Quarter 2. Calculate the price elasticity of demand between Quarter 1 and Quarter 2. What suggestions would you make to the Owners regarding changing their prices given your answer?  

The Owners notice that the average monthly income of their regular subscribers changed from £3000.00 per month to £2400.00 per month. They also noticed sales of their Premium virus protection software decrease from 9000 to 6500 during this time period. Calculate the income elasticity of demand and identify whether the protection software is a necessity or a luxury good.

Question 2

Question 2

A package delivery company has seen a significant increase in demand. In the attempt to satisfy the increased demand, the company management feels that they are being inefficient. They have found themselves paying ad hoc overtime, hiring additional bikes/vans a short notice, having to outsource different tasks/orders/business functions etc. They also have a small working team conducting various roles but with the increased orders some mistakes are being made resulting in additional costs to rectify issues (e.g. compensation, hiring short notice support etc.). They have a rather basic information system and mainly use spread sheets (MS Excel) for most operating functions.

The company feel that they are in a position where they need to plan for the future and hire you as a consultant to consider means in which they can reduce average costs in the long run so that they can efficiently keep up with demand. Using your knowledge of economies of scale and diseconomies of scale consider means in which the company can reduce average costs over the long run. (N.B you should use diagrams to support your answer, you do not need to consider actual costs but you should consider initiatives that would aid reducing average costs over the long run)

Question 3

A market analyst asks for your help to forecast changes in different markets. The market analyst would like you to look at the following markets; Traditional Board Games, Plant Pots, Personal Surveillance Equipment for Home Security, Electric Bicycles.

When conducting research related to the relevant markets the following articles appear to given strong indication of relevant market changes: Children are playing less with traditional toys and more on electronic devices; There are many blogs and social media posts providing advice on caring for plants as tending to plants became a popular hobby for many during national lockdowns; There are an increased number of thefts in packages delivered to homes; There is a disruption to the supply chains that provide parts required to produce personal surveillance equipment; There is an increase in popularity to find alternative modes of transport than cars and public transport; The technological process related to the manufacturing of electric bicycles improves.  

Given the above noted articles, consider how they may affect the market price and quantity of the markets that you are reviewing. Ensure that you use supply and demand diagrams to support your answers.

Question 4

Consider the diagram below that shows the market for local ferries that transports vehicles and people across rivers. The government believe that this service is important to the citizens of the economy and enforce a maximum price on the good. The maximum price applied is shown as price Pm. Use your knowledge of producer surplus, consumer surplus and deadweight loss to answer the following questions. (For these questions you need to indicate the relevant areas using points noted on the diagram below or by providing your own illustration with relevant areas clearly highlighted).

1. Identify Domestic Consumer Surplus and Producer Surplus at the original equilibrium, Pe.
2. Identify Domestic  Consumer Surplus and Producer surplus at Price Pm i.e. the maximum price.
3. Does any deadweight loss occur from the application of the minimum price?
4. Do you believe that imposing a maximum price was beneficial overall?

Question 5

The supply and demand for peanuts are given by QD = 900 – 10P and QS = 5P, where P is price per bag (in pence) and Q measures bags per day. (It would be useful to illustrate the factors noted in a demand and supply diagram to make aspects clearer to see).  

1. What is the equilibrium price and quantity?
2. Calculate consumer and producer surplus
3. Suppose the government imposes a price floor of 70p per bag. Is there a shortage or surplus of peanuts and, if so, what is the size?
4. Calculate consumer and producer surplus with the price floor.
5. What is the size of the deadweight loss?

Question 6

Ashley sells hand-made scarves in a perfectly competitive market for £15 per scarf. Ashley’s fixed costs are £10, and she is capable of producing up to 6 shawls per week.

1. Use that information to fill in the table below. (Hint: The variable cost of the first unit of production equals its marginal cost and total variable cost is simply the sum of the marginal costs up of the units of production up to any particular quantity of output) 

1. Given the Profit Maximising condition, what quantity of scarves should Ashley produce in order to maximize her profit?
2. Ashleyfinds a new place to sell and a new supplier so her fixed cost falls to £7 and there would be a change to her variable costs. However, due to a decrease in market demand the selling price has changed to £12 per scarf. Information related to Ashley’s new cost and revenue projection is given in the table below. Calculate the new revenues and costs as per this new change and the table below. Does the quantity that Ashley should produce change given the new costs?

Question 7

Conduct an analysis of market structures:

Are perfectly competitive markets and their outcomes more preferred than monopolies?  Consider this from the perspective of consumers, producers and a welfare maximising government