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bandicam 2020-02-29 23-48-57-720

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Thank you. I am Mok King Shing from Group 1. And I will continue to explain the questions to you. Here in question 2.1b It states that The question asks about how the equilibrium market price and equilibrium quantity of flour will be changed due to the flood. First of all, Let's look into the demand-supply curve of the situation which is this diagram. Here, the red line represents the original supply of the flour in Hong Kong. The blue line is the demand curve and the green line is the new supply of flour. We know that wheat and flour are complement goods as flour is made from wheat. A large quantity of wheat is damaged due to the flooding. This will cause the supply of wheat decrease. Simultaneously, the supply of flour will also decrease. This will cause the supply curve of the flour shift to the left which means here from red to green. You can see that the new intersection point between the supply-demand curve is higher than the older one which means the equilibrium market price increases while the point is closer to the left. Therefore, the equilibrium quantity decreases. For question 2.1c, it states that It asks about how the increase of tax will change the equilibrium market price and equilibrium quantity of petroleum here. Again, the diagram. This time, the red line represents the supply curve. The blue line is the original demand curve. And the green line is the new demand curve. We know that petroleum and imported cars are complement goods as cars need petroleum to run with. The tax will increase the market price of car, leading to a decrease in the demand of a car. Therefore, the demand of petroleum will decrease This will cause the demand curve shifting to the left, which means from blue to green. You can see the newer intersection point is lower than the older one. Moreover, it's closer to the left. Therefore, both the equilibrium market price and equilibrium quantity will decrease together. For question 2.1d, it states that (Hong Kong people have become more health conscious=> they buy fewer cigarettes) Here, two events occur simultaneously. Therefore, we have to investigate them one by one . For the first event, the tax increases the price of cigarettes on sellers, leading to a decrease in supply and the supply curve will shift to the left. On the other hand, the Hong Kong people will buy fewer cigarettes. This will cause the demand of cigarettes decrease and demand curve will also shift to the left. So, how will the equilibrium price and quantity be changed? There are 2 possible outcomes. The first possible case is like this. Here, the blue line is the original demand curve and the green line is the newer one. The red line is the old supply curve and the orange one is the newer one. In this case, the demand curve shifts more to the left than the orange line. You can see that the intersection point between the new supply and new demand curve is lower than the older one, leading that the equilibrium market price will decrease. It is also closer to the left. Therefore, the equilibrium quantity will also decrease. For case 2, this time, the curve is like this. You can see that the supply curve shifts more to the left. The orange line is shifting more than the green line. You can see that the newer intersection point is higher than the lower one. Therefore, the equilibrium market price will increase. It's closer to the left. So, the equilibrium quantity also decreases same as the previous case. So we have finished question 2.1. And we are now stepping into question 2.2. Here is the supply-demand curve of a competitive market. The red line is the demand curve and the blue line is the supply curve. For question 2.2a, it asks that First of all, we have to understand the relationship between individual demand curve and market demand curve. Actually, adding horizontal data, which is quantity, of total individual demand curves will give us market demand curve. The x-intercept of market demand curve in this case is equal to 1000 time the x-intercept of individual demand curve because there are 1000 consumers and each of them is identical in terms of their demand. The y-intercept remains unchanged. With these two information, we can form the equation of individual demand curve very easily. The curve will be similar to this green line. As we have known before, the x-intercept of individual demand curve is 0.12 and y-intercept is 60 based on our information and some calculations. So, we can obtain the equation like this. However, in this graph, the green line the individual demand curve is not in scale because the original line will be much closer to the vertical y-axis. So the x-intercept in this line has been exaggerated for a clearer demonstration. For question 2.2b, it asks us to Observing the demand-supply curve, we can see that the intersection point is our answer. And equilibrium price is the y-coordinate where the two curves meet. And the equilibrium quantity is the x-coordinate. Therefore, the equilibrium price is $40 and the equilibrium quantity is 40 units of goods. For the following questions, I will hand over to Lee Nok Fung. He will further explain it to you. So, thank you.

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Duration: 8 minutes and 35 seconds
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Posted by: stupidfung on Feb 29, 2020

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