Boycotts

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1. Boycotts (2 pp.)

Before boycott, the equilibrium price Pe=87.5, Qe=4125.

A
If 0.75 of the demand comes from Observers, then demand from observers: Qob=0.75*(5000-10p) = 3750-7.5p

For the same reason, demand from non-observers:
Qnonob=1250-2.5p

Furthermore, the market splits into target and non-target markets. Supply from target market:
Stg=37.5p-187.5

Supply from non-target market:
Snontg=12.5p-62.5

The following shows how much observers and non-observers consume from each market. Qob=3750-7.5p
Stg=37.5p-187.5
P=87.5, Q=3093.75

Qnonob=1250-2.5p
Snontg=12.5p-62.5
P=87.5, Q=1031.25

So, before boycott, observers buy 3093.75 at target market, and non-observers buy 1031.25 from non-target market, both at the price of 87.5.

During boycott, observers will only go to non-target market: Qob=0.75*(5000-10p) = 3750-7.5p
Snontg=12.5p-62.5

The equilibrium price and quantity demanded for observers at non target market: P=190.625
Q=2320

Some demand will have to be lost from the observers: 3093.75-2320=773.75.

This price is too high from non-observers to accept. They will naturally go to target market: Qnonob=1250-2.5p
Stg=37.5p-187.5
The theoretical equilibrium price and quantity demanded for non observers at target market: P=35.9375, Q=1160
Demand is increased by 1160-1031.25=128.75

Total demand is 773.75-128.75=645 less than that before boycott. Supply stays the same. Eventually, target market will realize the big difference in their prices and try to raise its own price so that the difference in price at target and non-target markets will become smaller in the long run. D=4355-10P

S=50P-250
In new equilibrium, P=76.75, Q=3587.5. The target market reduces its price by 12%.

B
If 0.75 of the demand comes from Observers, then demand from observers: Qob=0.75*(5000-10p) = 3750-7.5p

For the same reason, demand from non-observers:
Qnonob=1250-2.5p

Furthermore, the market splits into target and non-target markets....
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