How would you use the concept of price elasticity of demand

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Reference no: EM132216147

QUESTION 1

Assume ceteris paribus, use demand and supply graphs to illustrate and explain the effect of the following events on the market for woollen jumpers in Australia. In your answer, mention the market equilibrium adjustment process.

(a) The price of leather jackets, a substitute of woollen jumpers, decreases.
(b) Adoption of new machines, which has increased the productivity of the knitting industry.
(c) A rise in income, assuming woollen jumpers are a normal good.

QUESTION 2

Find the flaws in the reasoning in the statement below, paying particular attention to the distinction between shifts of and movements along the demand and supply curves. Draw a diagram to illustrate what actually happens.

"A study shows that eating a clove of garlic a day can help prevent heart disease, causing consumers to demand more garlic. This increase in demand results in a rise in the price of garlic. Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic resulting in a fall in the price of garlic. Therefore, the ultimate effect of the study on the price of garlic is uncertain."

QUESTION 3

Recently in Sweden, due to the discovery of bird flu the demand for live chicken decreased. This was, at the same time, followed by the Swedish government taking precautionary measures and culling 50 percent of the live chicken stock in the country. Using demand and supply graphs illustrate and explain the impact on price and quantity in the market for live chickens? (Hint: There is more than one impact on price and/or quantity)

QUESTION 4

a) Assume the price of a good decrease from $10 to $8, leading to a rise in quantity demanded from 475 to 500 units. Using the midpoint elasticity formula, calculate the price elasticity of demand for the good at this price range.

b) How would you use the concept of price elasticity of demand to maximise the total revenue of your business?

QUESTION 5

Assume, in an industry where firms are making an economic profit, the creation of an internet platform has broken down all entry barriers and resulted in a huge increase in the number of firms entering the industry. What will be the implication on profit to the existing firms in this industry? Use graphical demand and supply analysis to support your explanation.

Reference no: EM132216147

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