a) Assume that the market for home transport of ready-made food from restaurants in a city functions as on free competition market. As a result, many have chosen to move out of the city the demand for this type of services fell. At the same time, several new players have established ther as providers of the service. Discuss the impact on the market equilibrium of these changes in demand and supply, and use a diagram to illustrate the reasoning.
a) Assume that the market for home transport of ready-made food from restaurants in a city functions as on free competition market. As a result, many have chosen to move out of the city the demand for this type of services fell. At the same time, several new players have established ther as providers of the service. Discuss the impact on the market equilibrium of these changes in demand and supply, and use a diagram to illustrate the reasoning.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:a) Assume that the market for home transport of ready-made food from restaurants in a city functions as on
free competition market. As a result, many have chosen to move out of the city
the demand for this type of services fell. At the same time, several new players have established then
as providers of the service. Discuss the impact on the market equilibrium of these changes in
demand and supply, and use a diagram to illustrate the reasoning.
b) Define the terms consumer surplus, producer surplus and socio-economic
profit. Use a diagram to illustrate the concepts in a free competition market.
c) Explain what is meant by the free competition equilibrium is socio-economic
efficient.
d) Explain what is meant by the term Pareto optimality. Explain the Pareto criterion
is an efficiency criterion or a distribution criterion. Is the equilibrium at free competition
Paretooptimal?
e) The market's demand for a product is given by
p = 320 2
х,
where p is the price of the item and x is the quantity traded. The market's supply curve is given by
p = 20 + x
Find the market equilibrium during free competition, and calculate the consumer profit,
the producer surplus and the socio-economic surplus. Illustrate graphically.
f) Assume that the supply side of the market described in problem (d) alternatively consists of a
monopoly. Calculate which quantity with the associated price maximizes the monopolist's
profit. Also calculate the consumer surplus, the producer surplus and that
socio-economic surplus. Illustrate graphically.
g) Take a reasoned position on the following statements: «What is most profitable for a private individual
business, is also most profitable for society. "
The answer must be justified on the basis of economic theory, and within the framework of
syllabus for this exam. You are welcome to use moments and relevant calculations
from the answer to previous sub-questions in this assignment to illustrate the reasoning.
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