Learning Tasks Summary – Weeks 2 to 4 assignment

Week 2 – Market Demand Scenarios

Task:
Explain and illustrate the impact on market demand for sugar in the following three scenarios:

1. The price of artificial sweetener increases

• Effect: Artificial sweeteners are a substitute for sugar. When the price of artificial sweeteners goes up, consumers will switch to sugar.

• Result: The demand for sugar increases, shown by a rightward shift of the demand curve.

2. News reports claim sugar contributes to obesity

• Effect: Consumer perception of sugar becomes negative due to health concerns.

• Result: The demand for sugar decreases, shifting the demand curve to the left.

3. The price of sugar increases

• Effect: This is a movement along the demand curve, not a shift.

• Result: There is a decrease in quantity demanded due to the higher price, but the demand curve itself does not move.

Learning Outcome:

• Understand the distinction between a change in demand and a change in quantity demanded.

• Analyze non-price and price factors that influence demand.

Week 3 – Price Elasticity of Demand (PED)

Task:

1. PED Calculation for Kellogg’s Cereal

   • Given: A 10% price increase leads to a 25% drop in quantity demanded.

   • Formula: PED = % Change in Quantity Demanded / % Change in Price
     PED = (-25%) / (10%) = -2.5

2. Elasticity Classification:

   • Since |PED| = 2.5 > 1, demand is elastic.

   • This implies consumers are sensitive to price changes.

Learning Outcome:

• Apply the PED formula.

• Distinguish between elastic and inelastic demand.

Week 4 – Tax and Elasticity: Cigarette Tax Case Study

Scenario:

Joe and Bruce discuss cigarette taxes and their economic impact.

Questions and Answers:

1. Is the demand for cigarettes price elastic or inelastic?

   • Demand is price inelastic because cigarettes are addictive and have few substitutes.

2. Who bears the burden of the new tax?

   • Consumers bear most of the tax burden due to inelastic demand.

   • Illustrated in a graph where the demand curve is steep and consumers absorb most of the price increase.

3. Is this economically efficient?

   • Economically, it is efficient if the tax corrects a market failure (i.e., health externalities).

   • It also generates government revenue while possibly reducing consumption over time.

Week 4 (Midweek) – Short Run Productivity: Tony’s Coffee Shop

Productivity Table Completion:

Staff Total Productivity Marginal Productivity Average Productivity 0 0 0 0 1 100 100 100 2 220 120 110 3 300 80 100 4 360 60 90 5 400 40 80 6 420 20 70 7 430 10 61

Analysis:

• Graph: Plot Total, Marginal, and Average Productivity curves.

• Diminishing Returns: Occurs from the third staff member onwards, where MP starts to decline.

• Why MP and AP behave as shown:

  • Initially, both MP and AP increase due to specialisation.

  • After a point, overcrowding and inefficiency lead to a decline in MP.

  • AP continues to rise until it intersects MP and then declines.

Learning Outcome:

• Understand the law of diminishing marginal returns.

• Analyze how firms vary output by adjusting labor in the short run.