Table of Contents
1a) At the level of equilibrium, Quantity demanded= Quantity Supplied that is Qd=Qs
Give, Quantity Demanded= 100-5P=5P
Equilibrium Price =100/10
So, substituting the value of Equilibrium Price obtained to get the value of Equilibrium Quantity we get,
Equilibrium Quantity =5*10
Equilibrium Quantity =50 widget corns
1b) Consumer surplus=0.5*(Maximum price consumers are willing to pay-equilibrium price)*equilibrium quantity.
Now putting the values in the above formula and estimating consumer surplus which will come as =1/2*(20-10)*50
So, Consumer surplus will be equal to $250.
Therefore, consumers are willing to pay the maximum amount of price at =100/5=20
Producer surplus=0.5*(Equilibrium price-Minimum price producers will accept)*equilibrium quantity.
Now putting the values in the above formula and estimating consumer surplus which will come as= 0.5*(10-0)*50
Minimum price producers will accept=0
So, Producer surplus will be equal to $250
Therefore, Total economic surplus will be equal to (Producer surplus + Consumer Surplus)
= 250 $+250 $
Therefore, Total economic surplus will be equal to $500
1c i)Price ceiling refers to the maximum price that is there safeguard the clients from being manipulated by widget manufacturers.
1c ii) Quantity Demanded =100-5*5
Quantity demanded =75 widget-corns
The surge in the demand will be equal to 75-50=25
Thus, the policy will increment the demand for the quantity of widget-corn by almost 25
Quantity Supplied =25 widget-corns
Fall in supply will be equal to 50-25=25
Thus, the policy will lead to a fall in the supply of the number of widget-corns by 25
1 c iii) New level of consumer surplus will be= 0.5*((20-5) + (15-5))*25
Therefore, new consumer surplus will be equal to $312.5
Increment in the level of consumer surplus will be equal to new CS-CS at equilibrium
Increment in the level of consumer surplus will be equal to (312.5-250)
Increment in the level of consumer surplus will be equal to $62.5
Thus, the policy will be a major amount reduce the cost of widgets.
New producer surplus will be equal to 0.5*(5-0)*25= 62.5$
Therefore, fall in producer surplus will be equivalent to PS at equilibrium-New PS
That gives fall in producer surplus as 250-62.5
Therefore, fall in producer surplus as $187.5
Thus, the policy will lead to a fall in the producer surplus by $187.5 that is a major amount reduction in the cost of widgets.
Variation in total economic surplus will be equivalent to increment in Consumer Surplus-fall in Producer Surplus
Variation in total economic surplus will be equivalent to 62.5-187.5
Variation in total economic surplus will be equivalent to -$125
Thus the policy will decrease the total surplus by $125; the reduction in the level of the producer surplus is more than the surge in consumer surplus as a consequence of the policy.
1 c iv) The result is irrelevant and it must not be taken into consideration. This is due to the result of the policy creating a deadweight loss in the language of loss of total economic surplus of the society.
1d) With the below graph it will be clearer;
Q* and P* are the equilibrium quantity and price respectively
Surplus of the consumer will be equal to Area (A+B)
Surplus of the producer will be equal to Area (C+D+E)
The total surplus will be equal to Area (A+B+ C+D+E)
Qd is the demand for the quantity after the price ceiling.
Qs Represents the supply for the quantity after the price ceiling.
Consumer surplus at the level of price ceiling will be equal to Area (A+C)
Producer surplus at the level of price ceiling will be equal to Area shown as D
Therefore, Total surplus at the level of price ceiling will be equal to Area (A+C+E)
2a) On X-axis Toilet Papers have been taken into consideration
On Y-axis, sanitizers have been taken into consideration.
2b) Production Possibility Frontier speaks to all combinations of two products that an economy can manufacture using various techniques and tools (Jhinghan, 2016). Since assets are scant and are not entirely substitutable for the manufacture of the two products. Additionally, since the innovation for manufacturing and asset escalation fluctuates to a great extent, the PPF isn't commonly a straight line. Due to this reason, we get a curve attributable to similar reasons.
2c) It can do the following listed things or steps:
3a) The coming of online video rentals and real-time affected the in-store film industry by diminishing the demand for in-store motion pictures (Business Model Inc., 2017). In the graph shown below, Price and Quantity are taken on the x-axis and the y-axis respectively. The initial demand was the Demand curve and the initial supply was the Supply curve. After the fall in the demand, the demand curve shifted to the left from Demand to Demand1. The initial equilibrium price was at P where demand & supply curves intersect and the initial equilibrium quantity was at Q as shown. After the fall in demand from Demand to Demand1, there was a fall in the equilibrium price from P to P1 and similarly, the equilibrium quantity also reduced from Q to Q1.
The assumptions that I took in these questions are:
(i) Online video rentals and streaming both are acting as substitutes for the in-store movies. This has reduced the demand for in-store movies.
(ii) The supply for in-store movies has remained the same and has not changed over the period.
3b) Netflix's demand for web-based streaming would be more value versatile than the demand for online film rentals all in all. Online film rentals are priced very less for each film and clients would demand the film if they find likable regardless of whether there is a little cost increment. The amount demanded online film rentals would not fall as much as the amount requested for Netflix membership when the value rises (Tryon, 2013). Netflix membership is valued a lot higher than the online film rentals so the interest would likewise differ more with the excessive cost. Netflix additionally has numerous substitutes which are more than the online film rentals and this reality likewise makes Netflix more Price elastic.
3c) The cross-price elasticity of demand for in-store rentals and online movie rentals would be positive. The incentive at the cross-price elasticity of demand is positive as both the products are substitutes (Findlay, Parkin & McTaggart, 2015). Online film rentals demand increments when the costs of the in-store rentals increments since these are substitutes. My answer infers at the equilibrium quantity and price of online film rentals is that when there is an expansion in cost for in-store film rentals, the demand curve for online film rentals movements to one side from Demand to Demand1 as appeared in the graph beneath. The graph shows the market for online film rentals. The move of the demand curve to the right side prompts the expansion in the equilibrium price from P to P1 level and the increment in the equilibrium quantity from Q to Q1 level.
3d) On account of COVID-19, a great many people are staying inside and they can't manage the cost of internet real-time features, such as Netflix. I don't feel that the legislature ought to direct the cost of internet real-time streaming. This is because these administrations are administrations which are not fundamental for survival (The Print, 2020). In my opinion, I feel that the administration ought to manage the cost of those merchandise and ventures which are fundamental for survival and sustainability.
Advantages of managing the cost of internet real-time online streaming can be listed as:
(1) The cost of internet real-time online streaming would turn out to be more reasonable to the individuals who can't address the significant expense
(2) The demand for internet web-based streaming features would increment.
Disadvantages of managing the cost of internet real-time online streaming can be listed as:
(1) If the managed cost of internet real-time online streaming is lower than the equilibrium price, the supply for web-based real-time online streaming would diminish than before.
(2) With more demand and popularity than before and lower supply than earlier, there would be a lack of web-based streaming services accessible to the individuals.
(3) The deficiency of web-based streaming services would probably make an underground market where a few people would follow through on a greater expense so they can show signs of improved services.
Business Model Inc. 2017. Netflix: How a DVD rental company changed the way we spend our free time. [Online]. Available at: https://www.businessmodelsinc.com/exponential-business-model/netflix/ [Accessed on: 27th September’2020]
Findlay, C., Parkin, M. and McTaggart, D. 2015. Economics. Australia: Pearson Australia.
Jhinghan, M. L. 2016. Microeconomic theory. New Delhi: Vrinda Publications
The Print. 2020. For streaming apps like Netflix, coronavirus is the test they weren’t ready for. [Online]. Available at: https://theprint.in/opinion/for-streaming-apps-like-netflix-coronavirus-is-the-test-they-werent-ready-for/386034/ [Accessed on: 27th September’2020]
Tryon, C. 2013. On-Demand Culture: Digital Delivery and the Future of Movies. United States: Rutgers University Press.
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