BEO1105 Economic Principle

QUESTION 1 Assume ceteris paribus, use demand and supply graphs to illustrate and explain the effect of the following events on the market for apples in Australia. In your answer, mention the
market equilibrium adjustment process. (a) The price of pears, a substitute of apples, increases. (b) Adoption of new machines, which has increased the productivity of apple farms. (c) A fall in income, assuming apples are a normal good.
QUESTION 2
Find the flaws in the reasoning in the statement below, paying particular attention to the distinction between shifts of and movements along the demand and supply curves. Draw a diagram to illustrate what actually happens. “A study shows that eating a clove of garlic a day can help prevent heart disease, causing consumers to demand more garlic. This increase in demand results in a rise in the price of garlic. Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic resulting in a fall in the price of garlic. Therefore, the ultimate effect of the study on the price of garlic is uncertain.”
QUESTION 3 Recently in China, the demand for live pigs decreased due to the spread of African swine fever. This was at the same time accompanied by the culling (killing) of 50 percent of the live pig stock in the country. Using demand and supply graphs illustrate and explain the impact of these two events on price and quantity in the market for live pigs? (Hint: There is more than one impact on price and/or quantity)
QUESTION 4
a) Assume the price of a good decrease from $10 to $8, leading to a rise in quantity demanded from 475 to 500 units. Using the midpoint elasticity formula, calculate the price elasticity of demand for the good at this price range.
b) In general, how can you use your understanding of the price elasticity of demand to maximise the total revenue of your business?
QUESTION 5 The CEO of HAPPY enterprise has informed his staff that the company will be producing a quantity, which will maximise its profit. Which two methods can the CEO use to determine a profit maximising level of output.