ECO701 Economics and the Business Environment Coursework May 20 Semester

ECO701 Economics and the Business Environment Coursework May 20 Semester

Coursework 1

This coursework contains a series of questions. Please complete all of the questions utilizing economic concepts, models and wider reading. There is no specific format required i.e. report or essay format, please note the question that you are addressing and provide an answer to the question.

The word limit of this coursework i.e. completion of all questions is 2000 words (excluding graphs, tables and references).

Question 1

In this question assume the role of a consultant who has been hired to advise a relatively new company that makes virus and malware protection software for Personal Computers (PCs) and Laptops that use Windows operating software. Using your knowledge of Demand address the following questions. All answers provided must be justified. Be sure to utilize relevant graphs and wider reading to support your answers.

  1. The Owners of the company noticed some recent changes in the market. For each of the noted changes explain the likely effect on the demand for the protection software.
    1. Decreasing the price of PCs
    2. Increases in the price of relative software made by a rival company
  • More consumers utilizing non-Windows tablets rather than laptops
  1. Laptop and PC manufacturers creating their own virus and malware protection software

(15 marks)

  1. The Owners share data they have gathered regarding their attempts to change prices and income data. The Owners charge a monthly rate for their software and allow the customer to stop usage at any time as long as they give a one month notice. A sale is classified as someone paying for the software in a month. Using your knowledge of Elasticity, identify/solve relative elasticities, interpret the answer and provide any applicable advice to the company. (Please give numerical answers to 2 decimal places)
    1. When the Owners changed the fee for the annual licence of their standard virus protection software from £9.99 per month in Quarter 1 to £6.99 per month in Quarter 2 sales changed from 10200 in Quarter 1 to 11000 in Quarter 2. Calculate the price elasticity of demand between Quarter 1 and Quarter 2. What suggestions would you make to the Owners regarding changing their prices given your answer?
    2. The Owners notice that the average monthly income of their regular subscribers changed from £3000.00 per month to £2500.00 per month. They also noticed sales of their Premium virus protection software decrease from 10000 to 7000 during this time period. Calculate the income elasticity of demand and identify whether the protection software is a necessity or a luxury good.

(10 marks)

Question 2

A package delivery company has seen a significant increase in demand. In an attempt to satisfy the increased demand, the company management feels that they are being inefficient. They have found themselves paying ad hoc overtime, hiring additional bikes/vans a short notice, having to outsource different tasks/orders/business functions, etc. They also have a small working team conducting various roles but with the increased orders some mistakes are being made resulting in additional costs to rectify issues (e.g. compensation, hiring short notice support etc.). They have a rather basic information system and mainly use spreadsheets (MS Excel) for most operating functions.

The company feel that they are in a position where they need to plan for the future and hire you as a consultant to consider means in which they can reduce average costs in the long run so that they can efficiently keep up with demand. Using your knowledge of economies of scale and diseconomies of scale consider means in which the company can reduce average costs over the long run. (N.B you should use diagrams to support your answer, you do not need to consider actual costs but you should consider initiatives that would aid reducing average costs over the long run)                                                                                                                                                                                                   (10 Marks)

Question 3

A market analyst asks for your help to forecast changes in different markets. The market analyst would like you to look at the following markets; Plush Toys, Private Nurseries (for children aged 2 – 4), Personal Surveillance Equipment for Home Security, Electric Bicycles.

When conducting research related to the relevant markets the following articles appear to given strong indication of relevant market changes: Children are playing less with traditional toys and more on electronic devices; The government increases support for working parents by paying for 20 hours a week of nursery for children up to 4 years old; There are an increased number of thefts in packages delivered to homes; The technology required to produce personal surveillance equipment improves; There is an increase in road tax and related charges for driving into populated areas; The cost and availability of some metals such as those associated in manufacturing electric bicycles has become harder to acquire.  

Given the above-noted articles consider how they may affect the market price and quantity of the markets that you are reviewing. Ensure that you use supply and demand diagrams to support your answers.

                                                                                                                                                                                     (15 marks)Question 4Consider a Good A showed in the diagram below. Domestic supply of Good A is given by the Supply Curve S0SD and Domestic Demand is shown by the demand Curve D0DD. Good A is also imported, the world price of Good A is PW. Due to complaints and lobbying from local producers of Good A the government agrees to ban imports of Good A. Point E denotes equilibrium under self – sufficiency i.e. when the country is closed to international trade of this good.

  1. Identify Domestic Consumer Surplus and Producer Surplus at Price PW i.e. with International Trade.
  2. Identify Domestic Consumer Surplus and Producer surplus at Price PE i.e. without international Trade
  3. Does any deadweight loss occur from the removal of international trade?
  4. Do you believe that ban of imports of Good A was beneficial overall?

(15 marks)

Question 5

The Government wants to support initiatives to aid energy efficiency. There are two projects that it is considering:

Project 1: Energy Efficient Boilers

The market supply and demand for energy-efficient boilers are given respectively by QS = 50P – 120000 and QD = 240000 – 70P, where P is the price per energy efficient boiler and Q measures the quantity of the energy-efficient boilers. The government wants to encourage the use of energy-efficient boilers as they believe it improves consumer expenses in the long run and would be better for the environment. The Government decides to provide a £300 subsidy per energy-efficient boiler i.e. Ps = (P + 300) after the subsidy.

Project 2: Smart Meters

The market supply and demand for advanced smart meters are given respectively by QS = 10P – 70 and QD = 140 – 5P, where P is the price per smart meter and Q measures the quantity of smart meter. The government wants to encourage the use of smart meters as they believe it improves consumer tracking of their expenses and would improve their energy efficiency usage over time. The Government decides to provide a £3 subsidy per smart meter i.e. Ps = (P + 3) after the subsidy.

  1. Calculate the equilibrium price and quantity of both products before the subsidy
  2. Calculate the prices consumers pay and producers receive after the government subsidy. (N.B Think about where a subsidy is applied and how it could affect that equation)
  3. How much would each of the subsidy programs cost the government?

 (20 marks)

Question 6

Conduct an analysis of market structures:

  1. Why are perfectly completive markets considered to be more allocatively efficiently and productively efficient in the long run compared to monopolies? (Use appropriate diagrams to support your discussions.)
  2. Does that mean mean that perfectly competitive markets and all of their outcomes would always be more preferred than monopolies