Microeconomics: Bangrian tea prices (3 questions)

Microeconomics: Bangrian tea prices (3 questions)

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Microeconomics: Bangrian tea prices (3 questions)

INSTRUCTIONS:
Briefing Your assignment should consider the relevant theoretical points raised in the lectures and the seminars.. Your diagrams must be properly labelled and explained; unexplained diagrams will be disregarded. The reading provided in the lecture hand-outs may be complemented by extra material. However, internet sources will not be accepted as a legitimate reference unless they are respectable academic journals. Please note that this is an individual piece of work and thus you must consult the relevant section of the Module Guide regarding plagiarism and syndication. Assessment Criteria -Knowledge & understanding of the theory & the principles involved -Identification of key issues and constructing theoretical frameworks for analysis -Ability to argue coherently and consistently -Evidence of wider reading -Ability to articulate and present theoretical knowledge and information effectively this is for 2nd year university. Task Assignment (50%) This assignment is in two parts. The first part has a weighting of 40% of the assignment mark and the second part 60%. Part One The diagram below shows how the price of tea in Bangria has changed over time. Bangrian tea prices . 1) Describe the trend in the Bangrian tea price between 1965 and 2005. . 2) There was a drought in Bangria in 1975 (and again in1985). Using simple demand (D) and supply (S) diagrams, analyse the impact of such an event, ceteris paribus, on the equilibrium price (hint: look at what happened to it in those years in the graph) and quantity of tea in Bangria in the short, medium and long terms. 1) Diana faces a choice between the amount to spend on university education and the amount to spend on other goods, given her preferences and fixed income. Using the standard indifference curve analysis, explain how she reaches an equilibrium in terms of maximising her satisfaction. 2) Assume that she is offered a scholarship for the amount of education that she wants to choose. Analyse the impact of this on her choice ceteris paribus. 3) Would she be better off if she were given the cash equivalent of the scholarship?
CONTENT:
MicroeconomicsName:Institution: Section One 1. The tea market in Bangaria has had a lot of fluctuations, increasing in price up to $3 and falling below $0.5 per pound, in some instances. The prices were below $0.5 during the period between 1965 and 1971, only managing to rise above the $0.5 mark at one time in the year 1970. From 1972, the prices increased steadily until during the 1975 drought, when they shot up to 1977 to the reach $3 dollar mark, then steadily fell to$1.6 per pound in 1978. They then rose above the $2 mark, only to fall back to $1.5 . The drought in the year 1985 caused a sharp upward shift of the prices from $1.5 $ 2.4 per pound in 1986 when the prices fell again after the drought. In 1987 there was a slight increase but then, prices fell further down to below the $0.5 dollar mark in 1993. The prices then rose in 1993 to $1.6 and later fell below $0.5 per pound in 2002, only to rise again through to 2005. 2. In a competitive market, the demand and supply of the basic consumer goods is affected by the price and the quantity of such goods in the market. If the supply of the goods in the market is reduced, the demand for the commodity goes up. This is because the number of people that require the commodity is much higher than the quantity of the commodity that is in the market to satisfy that demand. The higher the demand for the commodity increases the higher the prices increase as well. If on the contrary, the supply of the goods in the market increases beyond the quantity demanded, the prices fall, since there is enough of the commodity to go around (Lipsey, Chrystal & Lipsey-Chrystal, 2007).All factors constant (Ceteris paribus), the demand and the supply of the tea in the market of the country Bangaria would be the same, creating what is referred to as the equilibrium (as indicated by the black arrow in the line graph simulation below). The idea behind the equilibrium price is that, in a perfectly competitive market, there exists equal number of will and able buyers as there are number of willing and able sellers. In reality there is not such a point as there are a myriad of factors that will always affect the demand and supply o the tea in the market. Such is the case that took place in the years 1975 and 1985, when the country and majority of other places in the world experienced a long period of drought. Since tea production is affected by the weather among other factors, the long prolonged period of dry weather will affect the price o the commodity at the market level. The drought factor upsets the balance at the equilibrium to affect the quantity that can be supplied to the market and thus raising the demand of the tea and ultimately the prices...
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