Supply And Demand Concepts As An Economist For ABC Plastics
Supply And Demand Conceptsas An Economist For Abc Plastics Your Boss
Supply and Demand Concepts As an economist for ABC Plastics, your boss has asked you to respond to some questions she has regarding the company’s main product, tablet cases. A marketing research firm recently developed the following supply and demand schedules for tablet cases: Price/Case Quantity Demanded Quantity Supplied You are to develop a report addressing the following questions and present your findings to the Board of Directors: Questions: Construct a graph showing supply and demand in the tablet case market, using Microsoft Excel. How are the laws of supply and demand illustrated in this graph? Explain your answers. What is the equilibrium price and quantity in this market? Assume that the government imposes a price floor of $16 in the tablet case market. What would happen in this market? Assume that the price floor is removed and a price ceiling is imposed at $8. What would happen in this market? Now assume that the price of tablet cases drops by 50%. How would this change impact the demand for tablet cases? Explain your answer and reconstruct the graph developed in question one to show this change. Assume that incomes of the consumers in this market increase. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change. Assume that the number of sellers decreases in this market. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change. Explain the difference between a normal good and an inferior good. Would your answers to question #7 change, depending on whether this good is a normal or inferior good? Why or why not?
Paper For Above instruction
The analysis of supply and demand is fundamental in understanding the functioning of markets, such as the market for tablet cases produced by ABC Plastics. This report utilizes the provided supply and demand schedules to graph market equilibrium, analyze interventions like price floors and ceilings, and examine shifts caused by external factors such as price changes, income variations, and alterations in the number of sellers. The ultimate goal is to provide comprehensive insights for strategic decision-making by the company's board of directors.
Constructing the Supply and Demand Graph
To visualize the market dynamics for tablet cases, a graph plotting both supply and demand curves is essential. The demand schedule typically slopes downward, indicating that as the price decreases, consumers demand more tablet cases. Conversely, the supply schedule generally slopes upward, reflecting that higher prices incentivize producers to supply more. Using Microsoft Excel, these data points are plotted—price per case on the vertical axis and quantity on the horizontal axis—to clearly display the intersection point representing market equilibrium. The graph confirms the typical inverse relationship between price and quantity demanded and the direct relationship between price and quantity supplied, illustrating the laws of supply and demand effectively.
Understanding Market Equilibrium
The point where the demand curve intersects the supply curve signifies the equilibrium price and quantity. At this point, the quantity consumers are willing to buy equals the quantity producers are willing to sell, ensuring market stability without excess supply or shortage. Specific values for equilibrium depend on the exact data provided, but the location of this point indicates the natural balance in the market for tablet cases.
Impact of Price Floor at $16
A price floor set at $16 establishes a minimum legal price. If this price exceeds the equilibrium price, it can lead to a surplus, as suppliers are willing to supply more than consumers are willing to buy at that price. This surplus results in excess inventory, potential wastage, or pressure on producers to lower prices or find alternative solutions. Conversely, if the price floor is below equilibrium, it would be non-binding, having little to no impact on the market.
Implications of Price Ceiling at $8
Introducing a price ceiling at $8, below the equilibrium, restricts the maximum price that can be charged. This intervention typically causes a shortage, as demand increases—since lower prices attract more consumers—but supply decreases because producers are less willing to supply at reduced prices. Consequently, consumers may face scarcity, waiting lines, or rationing, which can distort market efficiency. The graph should depict the ceiling as a horizontal line below the equilibrium point, demonstrating the resulting shortage.
Effect of a 50% Price Drop
If the price of tablet cases drops by half, demand is likely to increase significantly, following the law of demand. Consumers perceive lower prices as an opportunity to buy more, boosting quantity demanded. This change shifts the market movement along the demand curve but, depending on the specific demand elasticity, could also shift the equilibrium toward higher quantities at lower prices. Reconstructing the graph with this new price illustrates an increased quantity demanded, a movement along the existing demand curve, and possibly a new equilibrium at a lower price and higher quantity.
Impact of Rising Consumer Incomes
Increased incomes generally lead to higher demand for normal goods—goods for which demand rises as income increases. If tablet cases are considered a normal good, demand shifts to the right, raising both equilibrium price and quantity. The reconstructed graph shows this rightward shift of the demand curve, reflecting greater consumer willingness to purchase at each price point. Conversely, if tablet cases are an inferior good, demand might decrease as incomes rise, shifting the demand curve to the left, causing a fall in both equilibrium price and quantity.
Decrease in the Number of Sellers
A reduction in the number of sellers decreases market supply, as fewer producers are available to supply tablet cases. This causes the supply curve to shift leftward, leading to higher prices and lower quantities exchanged in the market. The reconstructed graph reflects this leftward shift in supply, illustrating increased prices and decreased equilibrium quantity. The extent of the price change depends on the elasticity of demand; the less elastic the demand, the more pronounced the price increase.
Normal Good vs. Inferior Good
A normal good’s demand increases as consumer incomes rise, while demand for an inferior good decreases. Whether the tablet case market is characterized as normal or inferior influences how demand responds to income changes. If the good is normal, demand shifts rightward with increased income; if inferior, the demand shifts leftward. This distinction affects strategic decision-making, particularly concerning marketing and product positioning. The responses to questions about income changes would vary accordingly, directly impacting equilibrium outcomes and market strategies.
Conclusion
Understanding shifts and policies affecting supply and demand enables ABC Plastics to anticipate market reactions and optimize pricing strategies. Graphical analysis and awareness of economic principles provide actionable insights, ensuring the company remains competitive and responsive to external factors.
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