The determinant of price elasticity of supply is the length of the production period. If a good is produce more rapidly, the easier it will be respond to change in price. This situation show that supply be more elastic. Besides that, supply in industrialized is usually more price elastic than agriculture. Supply of industrialized goods is seldom relatively priced inelastic but supply of agriculture often relatively in price inelastic. For instance, LGS firm produces 5000 units of washing machines in the short period due to the efficient facilities and modern technological. Therefore, the price of the washing machine and the revenue received will increase when all the washing machine is sold out. Thus, the supply of the washing machine becomes more elastic. Another determinant of price elasticity of supply is the subsistence of extra capacity. A producer who has a supply of goods or available storeroom capacity can quickly increase supply to market. If they have extra goods in stock they will be able to react to a change in price more rapidly. This makes supply more elastic. If it is easy to stock goods, then if the price rises the firm can sell these stocks and so supply is more elastic.
Question 2 : Part B
Elasticity is the concept in economics that measure of responsiveness. Measure of this responsiveness of quantity demanded or quantity supplied to changes in any determinants. Measurement of price elasticity of demand helps consumer to decide to purchase something to a change in price. Furthermore, price elasticity of supply measure the association between changes in quantity supplied and change in price.
The important of elasticity for a business associate to the effect of price change on total revenue. Total amount of producer received is total revenue of the business sales. A decrease in price will increase the total revenue, demand is elastic. Lesser the price received, the enough products are sold to cover for the lower price. For instance, when demand of furniture is elastic, supplier should set the price lower due to increase the total revenue. If demand is inelastic, a price decrease will cause reducing of total revenue. For instance, price of a product is RM3 and quantity demanded is 10 units. Total revenue is RM 30. If price drop to RM 1 per product, the total revenue is RM10. Total revenue is decrease rapidly from RM30 to RM10. Unit elasticity occurs when in special case, an increase or decrease in price, total revenue is remains unchanged. The loss in revenue from a lower unit price is balance by the gain in revenue from the increases in sales.
Question 3 : Part A
S1
S0
Quantity
Supplied
Figure 1 : Supply Curve
There is a change in supply when the supply curve shifts rightward or leftward. Based on the diagram, the supply curve shift rightward when there is increase in supply. The factor of change in supply is due to a change in any determinants of supply. Three factor of change in supply is improvements in technology, the cost of making good, and expectation about the future price.
Improvements in technology enable to help firm reduce the costs production. Lowers the production costs will enable firm to supply more. If firm continue using the old technology machines are inefficient, supply of machines will decrease. For instance, improve technology in producing washing machines will decreasing the costs production. Thus, manufacturers will supply more washing machines. Supply curve of washing machine will shift from S0 to S1. Moreover, The costs of making good are the factor of changes in supply. Price of a raw material is important for a firm to decide how much the cost production and how many good can be produce. If raw materials are expensive, firm unable to produce so many goods due to the cost production are rise and thus supply of a good will decrease. If price of raw materials decrease, firm able to produce more goods due to the cost production are low and thus supply of a good will increase. For instance, if price of flour decrease, firm are able to produce more quantity of cake. Thus, supply of cake will increase since flour is one of the raw materials used to produce cake. Supply curve of cake will shift from S0 to S1. Furthermore, Expectation about the future price will affect the quantity supply of goods. If producers expect that the price of a good will decrease in the future, producer will increase the quantity supply of goods now due to earn more profit before the price of goods decrease. If expectation about the future price will decrease, supply now will increase. For instance, producer expected the price of a blackberry phone will decrease in the future; supply now of a blackberry phone will increase. Supply curve of a blackberry phone shift from S0 to S1.
Question 3 : Part B
Min
Price
S
Price
Price
S
Max price
Pe
e0
D
Quantity
Quantity
D
Pe
e0
Figure 3 : Price Floor
Figure 2 : Price Ceiling
Market forces are prevented from functioning normal. When uncontrolled, prices rise and price fall to correct inequality between the quantity supplied and quantity demanded in a market. If sellers found themselves at a given price with more production than consumers are willing to buy, the price will fall. Similarly, if the market is not produce enough of a good to satisfy consumer demand, the price will rise. Price floors and price ceilings prevent price movements to correct these imbalances.
Price ceilings on the demand side can cause shortages and will stifle production on the supply side. For instance, if the government intervention that the price for a diamond ring can go no higher than RM500, then everyone in the short run would try to buy them at once. In the long run, diamond miners, refiners, and sellers would determine that it is not worth it to spend their time and money mining, refining, and selling those diamonds since it wouldn't be profitable. In the end, diamonds aren't produced by producers and aren't bought by consumers like they normally would. Even though there are consumers who would want to buy, there aren't any producers making them. Price floors cause surpluses on the demand side and can also affect matters on the supply side. If the government intervention that all chocolate bars can be sold for no lower than RM50 each, then in the short run there would be a fall in the purchase of chocolate bars, while every candy bar maker would produce more and trying to get profit on the artificially inflated price. In the long run, there would be a ton of chocolate turning moldy on store with a ton of consumers who want to buy them, but can’t afford to do so. The producers want to produce, but the consumers cannot afford to buy.
Both instances would create black markets. With the price ceilings, people who can get their hands on the cheap diamonds will try to circumvent the law and sell them at a higher price. With price floors, consumers would try to purchase from another jurisdiction.
Question 5 : Part A
Price (RM)
Price (RM)
D1
D1
4
D0
D0
2
D
20
Quantity
Demand
(unit)
Quantity Demand
(unit)
40
Figure 2 : change in demand
Figure 1 : change in quantity demanded
Demand mean the quantity of good that consumer ability and willing to buy or wanted to buy at different price level. It is the longing to buy something, by the willingness and ability to pay for it. If price increase, quantity demanded will decrease. The changes in price of a good will affect the changes of quantity demanded. This situation state that is a law of demand. An inverse relationship between price and quantity of good. There are a lot different between decrease in demand and decrease in quantity demanded.
First of all, a change in quantity demanded will change the movement of demand curve. A movement to upward or downward along the demand curve occurs when there is a change in quantity demanded. There is a movement from one point to another point. For a change in demand, a change in demand will change the demand curve shift to rightward or leftward. The factor of changes in quantity demanded is the change in price of a good itself. When the price of a good increase, quantity demanded of the good will decrease. Besides that, when the price of a good decrease, thus quantity demanded of the good will increase. The relationship between price and quantity of good is negative. Based on the figure 1 show that is a change in quantity demanded. If price of a good increase from RM 2 to RM 4, quantity demand will decrease from 40 units to 20 units. Demand curve will move from D0 to D1. However, the factors of changes in demand is the occurs of the determinants of demand such like the price of related goods, the size of households’ income, taste of a person, expectation and others will cause to shift of the demand curve. For instance, the rise of a person income will decrease the demand of good. Consumers are able to buy due to the risen of income. For example, Julie assume that vivo rice is a inferior good, when Julie income increase, quantity demanded of vivo rice will reduce because Julie is prefer and ability to buy superior good. Based on the figure 2 show that is a change in demand. Thus demand curve shift from D0 to D1.
Question 5 : Part B
Income elasticity of demand states that the degrees to which consumers respond to a change in income by quantity bought of particular good. It is calculated as the percentage change in demand to the percentage change in income. For example, if there is a response to a 5% increase in income, the demand for a good increased by 10%, the income elasticity of demand would be 10% / 5% = 2.
The degree to a demand for good changes with respective degree when there is a changes in income and it is depends on the type of good whether the good is a normal good or a luxury good. A positive, income inelastic of demand (0<YED<1), if the quantity demanded rises by a smaller percentage than the increasing in amount of income. If the good is a normal good the income elasticity of demand of the good will be less than 1. During an increasing income, demand for luxury products will increase than the demand for normal good. Income elastic of demand (YED>1) If the quantity demanded rises by a larger percentage than the rise in income. For the luxury good, the elasticity of demand will be greater than 1. If the income elasticity of demand is negative (YED<0) is related with inferior goods; an increase in amount of income will cause a fall in the demand. A perfect income elasticity of demand occurs when an increase in will not make any changes in the demand of the good. These would be necessity goods.
Question 6 : Part A
Price
S
Figure 1 : Consumer Surplus and Producer Surplus
Pe
e0
Producer
Surplus
Consumer
Surplus
Quantity
D
Surplus is used in economics for many related to quantities. The consumer surpluses is the number that consumers get the benefits by being able or expect to pay a product with a price that is less than the price they would be willing to pay. For instance, consumer wanted to buy furniture and expect the furniture worth RM1000. Consumer can get furniture with the price RM950, due to the price fall of furniture in market. Thus, consumers get the benefit to pay less than the expected price. The difference between the maximum prices is willing to pay by the consumer for the product and the actual price. This show that is a consumer surplus.
The producer surplus is the number that producers get the benefit by selling at a market price that is higher than the price that they would be willing to sell for. For instance, producer willing to sell 300 units of cross shoes with the price RM 120 per shoe. Consumer willing to purchase the entire cross shoe for the price RM 150 per shoe from the producer. Producer sells the entire cross shoe to consumer and received RM 45000. This situation show that the price of producer received is higher than their willingness and expectation price. Producer expected to sell the entire cross shoe with the price RM 36000, the actual received price from consumer is RM 45000. This show that producer surplus is RM 9000.
I Phone
Question 6 : Part B
16
B
A
15
C
Productions
I Phone
Blackberry Phone
A
16
0
B
15
2
C
13
4
D
11
6
E
7
8
F
0
11
8
11
Figure : Production Possibility Frontier
11
10
13
Blackberry
Phone
F
E
D
2
4
7
Economics is considered how a person and society choose with the scare resources to a manufacture of goods to satisfy unlimited wants. A scarcity in economics mean the resources are needed is not enough to manage unlimited want from consumer. The limited of resources, the unlimited of wants. Resources of economics in proportion to unlimited wants have being a crises economics. The Basic economics concepts have been using in economics market is Scarcity, Choice, and Opportunity Costs. Scarcity state that when there is lack of resources pander to all unlimited wants. However, Scarcity is formed. When there is a scarcity, people forced to make a choice in order to maximize their satisfaction. After make a choice, the others choice as an opportunity costs. When one choice is taken, the other choice must be sacrificed. These situations as known as Opportunity Costs. Economics resources are classified under 4 headings such like Land, Labour, Capital, and Entrepreneurship. For instance, a firm got a factory and wanted to produce I phone or Blackberry phone. Due to the limited resources, firm only can choose either I phone or Blackberry to produce. Based on figure X, if firm produce 15 units I phone, they could only produce 2 units Blackberry phone. They have to forgo the production of Blackberry phone by 9 units. Therefore, the opportunity cost of producing 15 units I phone is 9 units Blackberry phone. If firm produce 13 units I phone, they could only produce 4 units Blackberry Phone. They have to forgo the production of Blackberry phone by 7 units. Therefore, the opportunity cost of producing 13 units is 7 units Blackberry phone. If firm produce 11 units I phone, they could only produce 6 units Blackberry Phone. They have to forgo the production of Blackberry phone by 5 units. Therefore, the opportunity cost of producing 11 units is 5 units Blackberry phone. If firm produce 7 units I phone, they could only produce 8 units Blackberry Phone. They have to forgo the production of Blackberry phone by 3 units. Therefore, the opportunity cost of producing 7 units is 3 units Blackberry phone. If they want to produce maximum 11 units of Blackberry phone, they couldn’t produce any I phone. The production of I phone forgone is 16 units. The opportunity cost of producing 11 units Blackberry phone is 16 units I phone.
