Question 1
Examination of the effect of government price legislation on Jane a farmer in rural Philippines
From the given figure above, this is observed that at the price of 2.00 AUD per kg as legislated by the government, the demand and supply of rice are 15000 tons and 25000 tons respectively. Thus, there is an excess supply of rice by 10000 tons. As a result, there will be wastage of rice produced by Jane if the price does not come back to the equilibrium of 1.50 AUD per kg. On the other hand as depicted in the figure given above that the price rise of rice
from 1.50 AUD per kg to 2.00 AUD per kg will not have any impact on the revenue of Jan e as in both the cases the revenue will be the same of 30,000,000 AUD.
Calculation of the price elasticity of demand using the midpoint formula for rice.
The formula determining price elasticity of demand is 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦/𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑝𝑟𝑖𝑐𝑒.
Using the midpoint formula of price elasticity of demand,
Percentage change in the quantity = 200/7%
Percentage change in the price= – 200/7%
Thus, the price elasticity of demand of rice using the midpoint formula is -1.
Price elasticity of demand for rice is
Price elasticity of demand for rice is -1. Thus, the demand for rice is inelastic. As a result, it can be said that rice is a necessity.
Rice is a necessity
From the concept of price elasticity of demand, if the price elasticity of demand is greater than 1, it is said that the demand is elastic, which is observed in case of luxurious goods.
Explanation
If the price elasticity of demand is lesser than 1, it is said that the demand is inelastic. Inelastic demand is observed in case of necessary goods. Necessary goods are characterised as such goods demand for which reduces with an increase in price (Bochanczyk-Kupka, p133
(2), 2019). As in this case the demand of rise fell from 2000 tons to 1500 tons when there was
an increase in its price from 1.50 AUD to 2.00 AUD.
Question 2
Calculation of accounting profit
Total Revenue from the business= $250,000+$180,000= $430,000
Total cost in the business= $80,000+$80,000+$60,000+$30,000+$50,000+$30,000+$10,000+$2000=$342,000
Profit from the business= ($430,000-$342,000) = $88,000.
Thus, this business is profitable for John in comparison to teaching. Thus, from the concept
of accounting profit I would not suggest John not to return to this previous job of teaching.
Calculation of economic profit
On the other hand, when John was a high school teacher he had a yearly total earning of $54,000 as net salary and $2,500 from his savings of $50,000. Thus, he had a total yearly income of $56,500. Thus, from the calculation of economic profit, the opportunity cost of teaching in comparison to the milk bar business is ($88,000-$56,500) = $31500. Thus, from the calculation of accounting profit and economic profit, it is observed that doing the milk bar
business is more profitable for John in comparison to the job of teaching. As a result, I would not suggest John to return his previous job of teaching instead of the business of milk bar.
Question 3
Market structure of Adidas Sports Shoe Company
The market structure of Adidas Sports Shoe Company is monopolistic. Two characteristics that describe Adidas Sports Shoe Company are the presence of many other companies such as Puma, Nike, and Reebok in the same industry who sell similar but not identical products and its ability to do the pricing of its sport shoes according to its wish. In the case of Adidas Sports Shoe Company, it has many other rivals in the market who make similar but not
identical sports shoes across various countries in the world. Adidas not only focuses on health and trendy looks of the customers by their shoes, instead, it also keeps a constant eye on local tastes and input for local people (Dominguez, 2020, p43 (2)). It keeps strict links with CSR and other legal compliance activities. The sports shoes manufactured by Adidas Sports Shoe Company are priced as per the choice of the company due to the presence of no such substitutes in the market. As a result, this can be said that Adidas Sports Shoe Company belongs to a monopolistic market structure.
