Prices and Markets Questions for Demonstration Lectures

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Prices and Markets Questions for Demonstration Lectures

QUESTIONS IN RED MUST BE ATTEMPTED BY STUDENTS FIRST. STUDENTS HAVE FIVE (5) MINUTES TO ANSWER THE QUESTION ON THEIR OWN AND FIFTEEN (15) MINUTES TO DISCUSS THEIR ANSWERS IN A GROUP OF 2-4 INDIVIDUALS. Your tutors will be available throughout this period to help you answer any questions.

The questions marked with **** will not de discussed in the tutorial and must be attempted by students on their own. If you have any questions please contact your demonstration lecturer, lecturer or email pricesandmarkets@rmit.edu.au

Prices and Markets Demonstration Lecture Questions

1

Topic One: Markets, Demand and Supply 1. Explain the meaning of the following criteria used in determining market structure of Coca-Cola : • concentration • differentiation • barriers to entry

Background: The Atlanta–based Coca-Cola Company controls about 65 per cent of the soft-drink market. Pepsi-Cola has about 15 per cent. The rest belong to other soft-drink products.

2.

Explain how two markets that have the same number of firms can have different levels of concentration. (a) Suppose the demand and supply curves for Yum-Yum Chocolates are as follows: QD = 200 - 5P QS = -25 + 4P (i) (ii) where P is in dollars per unit of Chocolate.

3.

Sketch the demand and supply curves. What does "ceteris paribus" mean in relation to the demand curve above? (iii) In this example, what is the equilibrium price of Yum-Yum Chocolate, quantity supplied and demanded, total purchasers' expenditure on Yum-Yum Chocolates and total revenue received by sellers? (b) At a later period it is found that the supply function for Yum-Yum Chocolates is: QS = -7 + 4P (i) (ii) What is the new equilibrium price and what quantities are bought and sold in equilibrium? Does the fall in the equilibrium price, which follows this shift of the supply curve, shift the demand curve and hence raise the consumption of Yum-Yum Chocolates?

Prices and Markets

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