ECON1025 ASSIGNMENT 1 - Is the pizza market described

Prices & Markets
SIM, Semester 2, 2016
ECON1025 ASSIGNMENT 1
Value: 15% of total course assessment.
Word limit: 500 words, across all questions.
Assignment due date: 7 pm, 8th August 2016. Please be aware of RMIT’s penalties for
late submission, as they will apply to you.
Submission: This assignment must be submitted electronically via Blackboard. As it is
RMIT policy that all assignments be submitted electronically, hard copies or emailed copies
will not be accepted.
When submitting, please make sure you attach and upload your assignment as a one file
preferable in .pdf format. You can also submit in .doc or .docx, but please do not
use .pages. Please do not paste as text or upload a folder or zipped file.
IMPORTANT: Make sure you read and understand the student guide on How to submit
your assignment on Blackboard before you submit.
Marking: Marks will be awarded based on how well you: (a) understand the economic
concepts from the lectures; (b) apply the concepts to the question(s); (c) conduct
systematic economic analysis using the concepts (this includes the use of appropriate
graphs and diagrams); and (d) draw conclusions, if appropriate. Note that general layman
discussions do not constitute sufficient economic analysis.
Presentation: Assignments should be typed, using 10 – 12 sized font and 1.5 – 2 line
spacing. Graphs and diagrams can be hand drawn and scanned in, but must be clearly
drawn and clearly labelled.

Answer all questions.
Question 1:
Based the tables below, if Heath and Cliff are the only buyers in the pizza market and Cathy
is the only seller, what is the:
(a) market equilibrium price? (1 mark)
(b) market equilibrium quantity? (1 mark)
(c) consumer surplus at the market equilibrium? (1 mark)
(d) producer surplus at the market equilibrium? (1 mark)
(e) total benefit to society of this market? (1 mark)

1

You must show your calculations and/or use diagram(s) to demonstrate how you arrived at
your answers.
Price of pizza
$15
$14
$13
$12
$11
$10
$9

0
1
3
5
7
9
11

Quantity of pizza demanded by
Heath
Cliff
0
0
1
3
5
7
9

Price of pizza
$15
$14
$13
$12
$11
$10
$9
$8

Quantity supplied by Cathy
28
24
20
16
12
8
4
0

Question 2:
Is the pizza market described in Question 1 above efficient? Explain. Is it equitable? Explain.
In your answer, provide a definition of these terms.
(3 marks)

Question 3:
Suppose you are the manager of the only theatre in town that plays Shakespeare. You
found that the quantity demanded for your tickets decreases from 160 to 150 when the
ticket price increases from $44 to $49.
(a)
(b)
(c)
(d)

What is the price elasticity of demand for your tickets? Show your calculation, using
the midpoint method. (1 mark)
Explain the meaning of the elasticity calculated in (a) above. (1 mark)
Why do you think your tickets have the elasticity calculated in (a) above? (1 mark)
Would the elasticity calculated in (a) above apply to everyone in town? Why or why
not? (1 mark)

Question 4:
The news that oats can help reduce cholesterol has caused people to prefer to eat more
oats. This change in preference would be expected to cause the demand curve for oats to
shift to the right, and equilibrium price and quantity of oats to increase. If the price of oats
rises, what effects might be felt in other markets, and why? (3 marks)