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Questions:

  • An Absolute advantage can be described as having the capacity, as a producer, to produce goods with the use of fewer inputs as compared to other producers (Black, Hashimzade and Myles, 2012). From the given information, Jenny has an absolute advantage, both in the production of necklaces and bracelets, as she can produce more of both, given the same amount of time, as compared to Mary.
  • Opportunity cost is the value one places on the next best alternative one forgoes (Greenberg, Spiller, 2015). Jenny’s opportunity cost of producing one necklace is:

30/20 = 1.5

This means that if she produces 1 necklace, she forgoes 1.5 of bracelets that she could have produced. In the same way, for Mary, we get:

15/15 = 1

This is the opportunity cost of producing a necklace over a bracelet and since the two quantities are equal, the opportunity cost is 1.

The above diagram demonstrates the demand and supply graph for Boost juice. As we can see, the equilibrium price and quantity of drinks are $12 and 600, respectively. This is so, as the quantity demanded and supplied are equal at 600 and hence the graphs intersect and market is in equilibrium.

4)  If the drinks are priced at $4, the quantity demanded of drinks would be 1000, while the quantity supplied of drinks would be 400. As the quantity demanded exceeds quantity supplied, this indicates a shortage in the market. In this case, there would be shortage of 600 drinks in the market, as can be seen from the diagram, and hence Boost juice will not be able to meet the demands of the consumers. This indicates a disequilibrium in the market, as consumers are willing to pay more to satisfy the demand and suppliers have a room to increase price charged so that they are able to supply more in the market. Eventually, producers will increase supply in response to the demand, the price would increase till it reaches 12 and quantity will be balanced at 600.

5) As the price of electricity supplied by the electricity market increases, in response to that, the demand of electricity will go down and people will try and move towards alternate forms of electricity. Since Solar panels are an alternate source of energy, it will act as a substitute of traditional electricity and therefore in response to the decrease in demand of traditional electricity source, the demand for solar panels would increase. Thus, as can be seen in the diagram, the demand curve of the solar panel market will shift and move upwards from D-1 to D-2. Therefore, in response to that, the price will move up from P-1 to P-2, and the quantity demanded will also increase from Qd-1 to Qd-2. The supply will remain unchanged, and due to that the equilibrium, which was initially at E-1 will now shift to E-2.

  • An Absolute advantage can be described as having the capacity, as a producer, to produce goods with the use of fewer inputs as compared to other producers (Black, Hashimzade and Myles, 2012). From the given information, Jenny has an absolute advantage, both in the production of necklaces and bracelets, as she can produce more of both, given the same amount of time, as compared to Mary.
  • Opportunity cost is the value one places on the next best alternative one forgoes (Greenberg, Spiller, 2015). Jenny’s opportunity cost of producing one necklace is:

30/20 = 1.5

This means that if she produces 1 necklace, she forgoes 1.5 of bracelets that she could have produced. In the same way, for Mary, we get:

15/15 = 1

This is the opportunity cost of producing a necklace over a bracelet and since the two quantities are equal, the opportunity cost is 1.

3)     

The above diagram demonstrates the demand and supply graph for Boost juice. As we can see, the equilibrium price and quantity of drinks are $12 and 600, respectively. This is so, as the quantity demanded and supplied are equal at 600 and hence the graphs intersect and market is in equilibrium.

4)  If the drinks are priced at $4, the quantity demanded of drinks would be 1000, while the quantity supplied of drinks would be 400. As the quantity demanded exceeds quantity supplied, this indicates a shortage in the market. In this case, there would be shortage of 600 drinks in the market, as can be seen from the diagram, and hence Boost juice will not be able to meet the demands of the consumers. This indicates a disequilibrium in the market, as consumers are willing to pay more to satisfy the demand and suppliers have a room to increase price charged so that they are able to supply more in the market. Eventually, producers will increase supply in response to the demand, the price would increase till it reaches 12 and quantity will be balanced at 600.

5) As the price of electricity supplied by the electricity market increases, in response to that, the demand of electricity will go down and people will try and move towards alternate forms of electricity. Since Solar panels are an alternate source of energy, it will act as a substitute of traditional electricity and therefore in response to the decrease in demand of traditional electricity source, the demand for solar panels would increase. Thus, as can be seen in the diagram, the demand curve of the solar panel market will shift and move upwards from D-1 to D-2. Therefore, in response to that, the price will move up from P-1 to P-2, and the quantity demanded will also increase from Qd-1 to Qd-2. The supply will remain unchanged, and due to that the equilibrium, which was initially at E-1 will now shift to E-2.

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6) As the excerpt from the article points out, the demand for these holiday spots and regional towns are increasing, and this is driving up the prices.

As can be seen from the diagram, as the demand for housing in the regional towns increases from HD-1 to HD-2, housing prices increase from P-1 to P-2 and quantity also increases from QD-1 to QD-2. There are many important determinants of housing demand and supply that Bernard Fingleton discusses in his paper regarding the housing market in UK. According to him Housing demand is negatively related with housing prices, positively related with the housing prices in nearby areas and positively related with the amenities or facilities provided within that area. While, Housing supply is positively related to housing prices in that area, negatively related to prices in nearby areas and positively related to what he calls “existing stock of properties” (Fingleton, 2008). Since young families are looking for specific changes in their lifestyle (Clegg, 2018), this indicates a search for amenities and since the regional areas provide these amenities, housing demand and therefore housing prices in that area will go up.

The article also highlights affordability as one of the main reasons that people preferred to move to these regions, as it states that there are affordability issues concerning the house market in Melbourne (Clegg, 2018). As the prices in these urban cities go up, the demand for houses there goes down. Thus, as highlighted before, it has a positive effect on the demand for housing in these regional areas, and it increases.             

As house prices in these nearby cities increase, suppliers might be attracted to divert their supply to that area, leading to a decrease in supply in regional areas. This can cause the equilibrium to shift, quantity to reduce and probably come back to the original level and prices to increase even further. As a property developer it may be important to analyze which force, demand or supply, is stronger, so as to determine the impact on prices and see which option offers the best value for money.

References:

                   Bieri D.S. (2014) Housing Affordability. In: Michalos A.C. (eds) Encyclopedia of Quality of Life and Well-Being Research. Springer, Dordrecht

                 Black, J., Hashimzade, N. & Myles, G., 2012. absolute advantage. A Dictionary of Economics, pp.A Dictionary of Economics.

                 Clegg, J., 2018. Tree-Changers And Bargain Hunters Cause Regional House Price Boom. [online] Domain.

                 Fingleton, B., 2008. Housing Supply, Housing Demand, and Affordability. Urban Studies, 45(8), pp.1545–1563.

                 Greenberg, A.E. & Spiller, S.A., 2016. Opportunity Cost Neglect Attenuates the Effect of Choices on Preferences. Psychological Science, 27(1), pp.103–113.

 

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