ECO701 Economics And The Business Environment Assessment Answer

2020 – 2021 ECO701 Economics and the Business Environment 

Coursework 1 Re-sit Assignment

This assignment is set for students who had not passed/completed Coursework 1 over Jan 21 – May 21 semester.

Please complete all of the questions noted below. Please ensure that you appropriately justify your answers including the use of relevant diagrams where possible. 

The word limit is 2000 words (excluding graphs, tables and references)

Which of the following factors influences demand? (5%)

1. consumer income; 
2. prices of complement goods; 
3. prices of substitute goods; 
4. the number of consumers

I and IV

II and III

I, III, and IV

I, II, III, and IV

Electric guitars and amplifiers are complement goods, and electric guitars and acoustic guitars are substitute goods. An increase in the price of amplifiers ______ the number of electric guitars consumers want to buy, while an increase in the price of acoustic guitars ______ the number of electric guitars consumers want to buy. (5%)

1. increases, decreases
2. decreases, increases
3. increases, increases
4. decreases, decreases

Genetically modified soybean seed is an example of a new production technology that has increased soybean productivity. As a result, this new technology ______ production costs and ______ the supply of soybeans. (5%)

1. raised; increased
2. lowered; decreased
3. lowered; increased
4. raised; decreased

Suppose that farmers can use their land to grow and sell soybeans and cotton.  How would farmers respond to rising cotton prices? (5%)

1. By producing less cotton and more soybeans
2. By decreasing the supply of soybeans and producing more cotton
3. By increasing the supply of soybeans and cotton
4. By decreasing the supply of soybeans and cotton 

If the price of crude oil falls (5%)

1. The profits of oil refineries will increase 
2. Employment in the manufacturing sector will fall 
3. Iran will go to war against Saudi Arabia
4. The price of fuel at the forecourt will decrease 

In the strawberry market, the quantity demanded is given by Q^D = 2,600 – 500P, and the quantity supplied is given by Q^S = –400 + 100P. What is the equilibrium price and equilibrium quantity? (15%)

1. £5 and 100 pounds
2. £4.25 and 3,000 pounds
3. £2.50 and 900 pounds
4. £1.80 and 2,200 pounds

The price of good Y decreases by 15% and the quantity of good X sold increases by 4%. What is the cross-price elasticity of demand for good X with respect to good Y? How are good X and good Y related? (10%)

1. The demand equation is Q^D = 15 – P. If the price increases from P = £6 to P = £7, what is the price elasticity of demand? (15%)

George bought a train set from Toys4Ever Shop. He paid £240 for the set and received consumer surplus of £125. What was George's willingness to pay for the train set?

1. £240
2. £365
3. 241
4. £125 (5%)

The market for cookies is represented by the following supply and demand conditions: Q^D =1,000 – 200P and Q^S = 400P – 200, where P is the £ price per box of cookies and Q measures boxes per day.

1. Solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer.
2. Suppose the government places a quota on cookies of 500 boxes per day. Solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer.
3. Calculate consumer surplus before and after the quota.
4. Calculate producer surplus before and after the quota.
5. Calculate the deadweight loss (excess burden) from the quota. (30%)