SUPPLY AND DEMAND
Assignment Overview
Before beginning this assignment, make sure you have gone
carefully through all of the required readings for this module. It is very important to carefully absorb the
general concepts as well as the numerical examples in the background
readings. For this assignment, you will
have to answer some purely conceptual questions, as well as some numerical
problems. For conceptual questions, make
sure to thoroughly explain your answers and to cite specific readings from the
required background materials to explain your answers. For numerical problems, make sure to show all
of your work and explain how you arrived at your answers (partial credit can be
given if you get the final answer wrong but do some of the steps correctly).
Case Assignment
Part A: Conceptual questions
Suppose you own a pet shop.
Your sales are decent but a marketing consultant tells you that you
could increase your sales and be able to charge a higher price if you spend
some money on local television ads. If
the consultant is right, will advertising lead to an increase in quantity
demanded? Or a shift in the demand
curve? Both? Neither?
Explain your answer and make sure to cite at least one of the required
readings in your answer.
You are the owner of a furniture factory. You normally produce 100 pieces of furniture
a day because that is how much you can produce given the amount of qualified
workers in your town and the amount of reasonably priced wood that you can
purchase locally. Then one day you get
an order from a large national retail chain who wants to purchase 200 pieces of
furniture a day from you. You are
hesitant, as you will have to pay higher wages to get some qualified workers to
move to your town. You also will need to
pay higher prices for wood because you will no longer be able to rely solely on
local suppliers and will have to spend more on shipping wood from other
towns. But you drive a hard bargain and
the retail chain agrees to pay one and a half times your normal price. Does this situation describe a change in quantity
supplied? A shift in the supply
curve? Both? Neither? Explain your answer and make sure to
cite at least one of the required readings in your answer.
Suppose marijuana has just been legalized in your
state. Nobody in your home town wants to
start a marijuana business, as this would be too much of a stigma. But being an MBA student, you know a good
business opportunity when you see one and decide to take a stab. Shortly after starting up your business, you
gain a loyal following of customers and start raking in some steep
profits. However, the local government
decides that they want a cut of your profits and starts charging a 20% sales
tax on marijuana. Do you think this
would lead to a 20% or greater loss in sales?
Do you think marijuana in this situation would be facing inelastic or
elastic demand? Explain your reasoning,
and make sure to cite at least one of the required readings regarding
elasticity.
Part B Quantitative Problem
Suppose the demand function for a new smartphone can be expressed
as QD = 1000 – 1.5P with QD being
quantity demanded and P being price. The
supply function can be expressed as QS = 50 + 2P
Fill out the following table using the above equations:
Price
Quantity Demanded
Quantity Supplied
Surplus Amount or Shortage Amount
200
220
240
260
280
300
320
340
Now answer the following questions:
What is the equilibrium price? You can compute this either using Microsoft
Excel, or by using algebra from the equations above and solving for a price
where quantity supplied equals quantity demanded. Show your work by either
showing the algebra steps or by showing how you used Excel to calculate.
Suppose the supply function changes to 100 + 2P. What is the new equilibrium? Show your work
by either showing the algebra steps or by showing how you used Excel to
calculate.
Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
For computational problems, make sure to show your work and
explain your steps.
For short answer/short essay questions, make sure to
reference your sources of information with both a bibliography and in-text
citations. See the Student Guide to Writing a High-Quality Academic Paper,
including pages 11-14 on in-text citations. Another resource is the “Writing
Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 1 – SLP
SUPPLY AND DEMAND
For the SLP this session, come up with an idea for a
business you would like to start someday.
This should be a business in an industry that you are familiar with and
can find a lot of information about.
This could be a type of business that you are currently working for or
have worked for in the past, or a type of business that you are a frequent
customer of. Finally – since you will
have to make estimates about costs of starting up the business or what type of
price you can charge, it is best to keep your business idea relatively simple.
For this first SLP, discuss your business idea and do some
initial research on what prices your potential competitors in your home town
are charging. More specifically, write a
three-page paper discussing the following issues:
What business do you want to start, and why? Explain your
personal connection to this type of business and discuss sources of information
about this business that you plan to use for your SLP.
What prices are these businesses in your chosen industry
charging? Try to get at least ten
examples of businesses and the prices they are charging, and create a table
that lists the prices and any other relevant information, such as whether the
product they sell is high-end quality or lower-end quality.
Do you notice a large range of prices that businesses are
charging for the service or product? If
so, what factors do you think explain the range of prices? Is it the quality of the product or service,
location of the business, amount of advertising done by each business, other?
Based on your answers to Questions 1 and 2 above, do you
think your product or service will have elastic or inelastic demand? You don’t have to do any calculations since
you probably won’t have access to sales data on the businesses you are looking
at – but based on the range of prices, you should be able to get an idea about
how sensitive consumers of your product or service will be to changes in
price. In addition to your own research
about prices in your home town, cite some of the required background reading on
elasticity to justify your answer.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
Make sure to use reliable and credible sources as your
references. Articles published in established newspapers or business
journals/magazines are preferred. If you find articles on the Internet, make
sure they are from a credible source.
Reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11- 14 on in-text citations.
Another resource is the “Writing Style Guide,” which is found under “My
Resources” in the TLC Portal.
