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Question 1

It is clear that music streaming is directly proportional to music download. According to the demand and supply, an increase in one also increases the other. For example, an increase in the demand of music streaming is equal to the demand of music download. When more people stream music the more also download the same. However, that of music streaming and CD are very different. Increase the demands of streaming means a decrease in the demand of CD.

Question 2

Question a)

Question 4b)

Price Floors are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market with too low of a price and thus their producers deserve some assistance. Price floors are only an issue when they are set above the equilibrium price, since they have no effect if they are set below market clearing price. When they are set above the market price, then there is a possibility that there will be an excess supply or a surplus. If this happens, producers who can’t foresee trouble ahead will produce the larger quantity where the new price intersects their supply curve. Unbeknownst to them, consumers will not buy that many services at the higher price and so those services will go unsold

Question b)

Under cost surge, Price Ceilings are maximum prices set by the government for particular services that they believe are being sold at too high of a price and thus consumers need some help purchasing them. Price surge only become a problem when they are set below the market equilibrium price.
When the ceiling is set below the market price, there will be excess demand or a supply shortage. Producers won’t produce as much at the lower price, while consumers will demand more because the services are cheaper. Demand will outstrip supply, so there will be a lot of people who want to buy at this lower price but can’t. Still, if the demand curve is relatively elastic, then the net effect to consumer surplus will be positive. Producers are truly harmed, as their surplus is doubly hit with a reduction in the number of firms willing to take that lower price, and those who remain in the market have to take a lower price.

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Question 3

Question a)

It is noted in the above graph that the quantity of rubber is taken on the X-axis while the y-axis will take the part of the price of the same product. The demand curve is taking effect from left right in the graph but denoted as a depreciating chart.  It has been indicated that the market for rubber in Thailand is a purely competitive market. It is considered that purely competitive market, the equilibrium quantity, and the price is determined via the intersection of the market supply curve and the market demand curve. Quantity and price conform or match to a point of intersection of the supply and demand curve coming up with quantity and price equilibrium (Rosegrant, Tokgoz & Bhandary, 2012).  As the above figure indicates, the Rubber market, demand curve, and supply curve are intersecting at point b and d. Besides, it also shows that the market for rubber market is very dependent on the price of the product. It is clear that there is a vast majority of the market influence of rubber with respect the quantity demanded as well as the quantity supplied. It is considered as a purely competitive market because there is high demand noted in the market. There is a limited value when it comes to the price of the products despite the fact that price has the greatest influence, it is also affected by other factors as indicated in the case study attached.

Question b)

From the graph the changes in weather affect the demand and supply of rubber in Thailand in 2015 as well as in 2016. This means that it will also influence the price of rubber in the said years if the government is not going to intervene. However, it is deemed pure competitive because every change in price affects the demand and supply of rubber. On the other hand, it is also evident that there is need to come up with price estimators and control measures to protect the consumers from exploitation. The price is considered as the determinant of the equilibrium price and quantity of rubber. With the higher rates of taxes imposed on rubber as well as the long dry spell that is expected to affect the production of the same, the price is projected to rise. Likewise, it is clear that with sudden changes in price, the equilibrium changes as the demand also decreases and the supply of the same will increase.

It can be concluded that the pure competitive nature of rubber is not only affected the price of the product, the article “Hot weather curtails crop” shows that taxes, as well as the demand and supply of the same, affects it.

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Question 4

In the short run if price is $9 per unit you know that the firm is earning positive economic profits since the price is greater than the breakeven price (Breakeven price is $8 per unit or the minimum point of the ATC curve). This implies that TR is greater than TC. We know that TC is greater than $120 since when price is $9 per unit the firm is producing more than 15 units and the average cost of producing these units is greater than $8 per unit. We know that FC is still equal to $70. Since TC is greater than $120 and FC is equal to $70, this implies that VC is greater than $50. The long-run prediction is entry of firms into this industry since short-run economic profits are positive.

In the long run there will be exit of firms from this industry until economic profits are equal to zero. Since firms are earning negative economic profit in the short run this indicates that P1 is less than the breakeven price. This tells us that exit of firms will occur in the long run until the market price increases to the price associated with the breakeven point.  As firms exit the market this will cause the market supply curve to shift to the left at every price: the long run price will rise to P2; the long run market quantity will decrease to Q2; and the firms that remain in the market will adjust their output to q2. Each firm left in the market will produce at their breakeven point: long run economic profits for each firm left in the market will equal zero.

Let’s start by considering the situation where MR > MC for the last unit produced and sold: when the firm considers the last unit it produces it finds that the addition to total revenue from producing and selling this unit is greater than the addition to total cost from producing this unit. The firm definitely wants to produce and sell this unit. But, if the MR > MC is true for the next unit, then the argument is still true. So, the firm should always increase its production when MR > MC.

Consider the situation where MR < MC for the last unit produced and sold: when the firm considers the last unit it produces it finds that the addition to total revenue from producing and selling this unit is less than the addition to total cost from producing this unit. The firm definitely does not want to produce and sell this unit. But, if the MR < MC is true for the next unit, then the argument is still true. So, the firm should always decrease its production when MR < MC. Thus, by logic the firm must end up at that quantity where MR = MC if the firm wants to profit maximize.

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Part 2

a) What is the present market structure of your selected industry or market? Are there any relevant barriers to entry?

The market is considered as one that offers reliable services to the consumers since it uses perfect competition market. It is clear that there are various companies in the industry offering the same services to an extent that it is able to acknowledge the issues that the consumers have in the market. On the other hand, it is clear that as a result of the competition in the market, there are various market entries barriers. This is one of the ways that the government as well as the other organizations that would like to change or to maintain a better understanding of the industry. The entry barriers are there to make sure that the consumer is protected for low quality goods and to stabilize the industry when it comes to the prices of the products and goods. Some of the barriers on the same is the laws that are in place to accept new entrants in the market. The laws and very strict hence most of the firms fear getting into the market. The other issue is that there is high level of taxation in the industry. This is a clear concern that there is denial of others to get to the market.  Lastly, the market has a lot of competition and operating on one commodity and services hence it is hard for new firms to get to the market because of high level of competition.

b) What is the likely effect of the entry of such peer-to-peer rental schemes on the structure of the market? What is the effect on competition, prices, quantities traded and profits?

It is clear that effect of the entry of such peer-to-peer rental schemes only increases the revenue or the income to the companies or the owners of the firms this is known as collaborative consumption. It has various benefits to the economy or the market. First it is evident that if there is such an entry is able to increase the income, it means that it will also be able to maximize the profits of the firms or the companies.  For this reason, I consider that peer-to-peer rental schemes are related to the increase levels of profits that are denoted in the market arena. The market structure under peer-to-peer rental schemes is also able to maximize the profits using various measures like being able to share one level of technology among others hence reduce the costs of production, this lowers the cost of delivery hence increase in the revenue or the profits.

The same applies to the prices of the services and the products rendered in the market. Once the firms are able to share the same technologies as well as other issues in place, it is able to reduce the price of the same. This is because there will be high level of competition and this will prompt price reduction strategies to be used in order to remain the market. The effect of peer-to-peer rental schemes to competition is high as well as to that of quantity traded among others.

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c) What is the basis of peer-to-peer rental schemes advantages, if any, over existing services provided?

The advantages of the peer-to-peer rental schemes are massive: in view of the current market status or structure, it is clear that it allow the firms to be able to share the same technologies in the market. As a result they are able to reduce the costs of production among all the other expenses that could be caused by the companies at stake.

Peer-to-peer rental schemes is able to increase the profits of the companies in the market as well. With the ability to be able to use the same technologies as well as strategies, it is clear that they can also cut down the costs incurred. This is attributed to high profits in the future as well as current profits.

On the other hand, it also reduce the increase in the number of market new entries. It is able to prompt the government to create measure in order to manage the issues in place like increase in the same firm in the industry creating a more specialized market.

d) What are the likely benefits of such schemes for consumers?

There are limited benefits of such schemes to the consumers, but it is clear that it can be able to increase the reliability of the services that we render to the consumers. First is allows the consumers to be able to get better quality of the services that they seek. This means that the consumer is also protected with the introduction of the schemes.

Secondly,  the schemes are able to make sure that the prices of the products are not high, the producers is not able to increase the prices of commodities as they wish but rather depend of the schemes created to manage the prices.

e) What might be the basis of existing providers objections to the entry of such schemes into the market?

First if the new entrants do not follow the law of the land when it comes to the type of business that they should undertake and secondly, if the find that they do not take part in ethical business.

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f) What are some of the challenges of the entry of such schemes for government regulation of the market or industry?

  1. Increased level of competition if one of challenges
  2. They have to use low price strategy to get clients or customers
  3. High start-up capital needed in such a market.


References

Heyne, Paul; Boettke, Peter J.; Prychitko, David L. (2014). The Economic Way of Thinking (13th ed.). Pearson. ISBN 978-0-13-299129-2.

Mankiw, G (2007). Principles of Economics. South-Western Cengage Learning.     p. 470. ISBN 978-0-324-22472-6.

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control.Issues in Accounting Education, 26(1), 258-259.

 

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