Basics of Economics problem. Boycotts. Problem 1. BoycottsSetup A frequently used instrument of economic coercion is the boycott. For example, a unioninvolved in a serious and protracted conflict with some employer or group of employers may urgeall of its sympathizers to stop buying the products of that employer or group, in the hope that theresulting economic losses will provide an incentive for the employers to make concessions.However, experience shows that the coercive power of a boycott is often small.In this exercise, you are to use supply and demand analysis as a tool to understand the effects ofboycotts. For the sake of concreteness and precision, most of the questions are posed inquantitative terms. However, the goal of the exercise is to develop your understanding of the logicof the market processes involved. Accordingly, if you have difficulty, don't try to overwhelm theproblem with calculation -- rethink the economics.Throughout the exercise, the following assumptions are to be maintained. First, the market inquestion is one to which simple supply and demand analysis is applicable: there are numerousbuyers and sellers in the market; the good is homogeneous; buyers and sellers seek only to tradeon the most advantageous possible terms and, aside from the complications introduced by theboycott, do not care with whom they transact. Second, the identities of buyers and sellers are fixed:in particular, no reselling of the goods takes place. Third, the set of buyers divides sharply intoobservers and nonobservers of the boycott, while the sellers separate equally sharply into thosethat are targets of the boycott and those that are not. Boycott observers will not, under anycircumstances, buy from a target seller, while non-observers do not care from whom they buy. Forsimplicity, it is assumed that boycott observers account for the same fraction of demand at everyprice. Similarly, target sellers account for a certain fraction of the supply at every price.Assume initially that in the pre-boycott situation, the market demand curve is described by:QD5000 10Pwhere Qp = quantity demanded and P = the price. The market supply curve has equation (withs =quantity supplied):Qs = 50 (P-5)except that, at prices of 5 or less, quantity supplied is zero.SituationABCObservers as Fractionof Original Demand3/41/41/2Target as Fractionof Original Supply3/41/41/4For each of the three situations, determine the market equilibrium that would arise under boycottconditions. Give the quantities transacted by observing and non-observing buyers, and by targetand non-target sellers.Drawing on your results, state the general principle which relates the effectiveness of a boycott tothe observance fraction and the target fraction. "Effectiveness," in this context, means lowering theprice to target sellers. Can you provide some intuition as well?

A boycott is a type of coercion in economics frequently used by unions or other organizations in…

с 1/2 1/4 For each of the three situations, determine the market equilibrium that would arise under boycott conditions. Give the quantities transacted by observing and non-observing buyers, and by target and non-target sellers. Drawing on your results, state the general principle which relates the effectiveness of a boycott to the observance fraction and the target fraction. "Effectiveness," in this context, means lowering the price to target sellers. Can you provide some intuition as well?

с 1/2 1/4 For each of the three situations, determine the market equilibrium that would arise under boycott conditions. Give the quantities transacted by observing and non-observing buyers, and by target and non-target sellers. Drawing on your results, state the general principle which relates the effectiveness of a boycott to the observance fraction and the target fraction. "Effectiveness," in this context, means lowering the price to target sellers. Can you provide some intuition as well?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Basics of Economics problem. Boycotts.

Problem 1. Boycotts
Setup A frequently used instrument of economic coercion is the boycott. For example, a union
involved in a serious and protracted conflict with some employer or group of employers may urge
all of its sympathizers to stop buying the products of that employer or group, in the hope that the
resulting economic losses will provide an incentive for the employers to make concessions.
However, experience shows that the coercive power of a boycott is often small.
In this exercise, you are to use supply and demand analysis as a tool to understand the effects of
boycotts. For the sake of concreteness and precision, most of the questions are posed in
quantitative terms. However, the goal of the exercise is to develop your understanding of the logic
of the market processes involved. Accordingly, if you have difficulty, don't try to overwhelm the
problem with calculation -- rethink the economics.
Throughout the exercise, the following assumptions are to be maintained. First, the market in
question is one to which simple supply and demand analysis is applicable: there are numerous
buyers and sellers in the market; the good is homogeneous; buyers and sellers seek only to trade
on the most advantageous possible terms and, aside from the complications introduced by the
boycott, do not care with whom they transact. Second, the identities of buyers and sellers are fixed:
in particular, no reselling of the goods takes place. Third, the set of buyers divides sharply into
observers and nonobservers of the boycott, while the sellers separate equally sharply into those
that are targets of the boycott and those that are not. Boycott observers will not, under any
circumstances, buy from a target seller, while non-observers do not care from whom they buy. For
simplicity, it is assumed that boycott observers account for the same fraction of demand at every
price. Similarly, target sellers account for a certain fraction of the supply at every price.
Assume initially that in the pre-boycott situation, the market demand curve is described by:
QD5000 10P
where Qp = quantity demanded and P = the price. The market supply curve has equation (withs =
quantity supplied):
Qs = 50 (P-5)
except that, at prices of 5 or less, quantity supplied is zero.
Situation
A
B
C
Observers as Fraction
of Original Demand
3/4
1/4
1/2
Target as Fraction
of Original Supply
3/4
1/4
1/4
For each of the three situations, determine the market equilibrium that would arise under boycott
conditions. Give the quantities transacted by observing and non-observing buyers, and by target
and non-target sellers.
Drawing on your results, state the general principle which relates the effectiveness of a boycott to
the observance fraction and the target fraction. "Effectiveness," in this context, means lowering the
price to target sellers. Can you provide some intuition as well?

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Step 1: Define the situation of Boycott

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