BEO1105

SUMMER 2015/16

QUESTION 1
Assume floods have destroyed 80 percent of the banana crops. Using graphical demand
and supply analysis, explain the impact on the price and quantity of bananas in the market.
2 Marks
NOTE: IN YOUR ANSWER EXPLAIN THE MARKET EQUILIBRIUM ADJUSTMENT
PROCESS.

QUESTION 2
Ceteris paribus, if a tax on petrol results in a large rise in the price of petrol, using graphical
demand and supply analysis, explain what would be the impact on price and quantity in the
car market for low fuel efficient cars (cars that use more petrol per kilometre) compared with
high fuel efficient cars. (Hint: you must answer the question using separate graphs to
compare the impact on market price and quantity on the two types of cars).
2 + 2 = 4 Marks

QUESTION 3
Assume, health officials in Hong Kong simultaneously engaged in the mass slaughter of
chicken in an attempt to control the spread of chicken flu and warned consumers against
purchasing live chickens. Using demand and supply analysis, what is the impact on price
and quantity in the market for live chickens? (HINT: THERE ARE 2 SCENARIOS WORKING
AT THE SAME TIME)
4 Marks

QUESTION 4
If the price of a good increases from $6 to $7, leading to a fall in quantity demanded from 50
to 35 units, what is the price elasticity of demand for the good at this price range? Explain
what the calculated elasticity value means.
2 Marks

QUESTION 5
Assume, in an industry where firms are making an economic profit, the creation of an
internet platform has removed ALL entry barriers and resulted in a huge increase in the
number of firms entering the industry. What will be the implication on profit to the existing
firms in this industry, ceteris paribus? Use graphical demand and supply analysis together
with the cost curves to support your explanation.
4 Marks

QUESTION 6
In an Oligopoly structure, where a few firms dominate and control the majority of the market,
there is often an absence of price competition. Use the game theory matrix to explain why
this is so? What are the alternatives available to firms to maintain or increase their market
share?
4 Marks