Activity Number 4

Demand & Supply

Deadline: December 10, 2021

Name: ____________________________ Course & Section: __________________

CRITICAL THINKING QUESTIONS

1. Illustration

1.1 Demand: For each of the fallowing cases, state how demand for the vehicle,
“HONDA SIR”, behaves, i.e., whether there is an increase or decrease in demand or
in quantity demanded.
i) The price of gasoline rises because of a shortage in the world petroleum market.
ii) A lower priced “TOYOTA REVO” enters the car market.
iii) The country is hit by another recession, causing a fall in real incomes.
iv) The government imposes a 10 per cent import levy on all imported car parts.
v) A lower rate of fatalities in accidents involving Honda Sir is observed.

1.2 Supply: Indicate whether a movement upward or downward along the supply
curve, or a shift leftward or rightward of the supply curve of MANGOES occurs for
the following cases:
i) The surge in export demand raises price.
ii) The government imposes a price ceiling on mangoes to appease consumers who
have not had enough of the fruit last year.
iii) A new variety is developed which doubles the out per tree.
iv) The current crop of mangoes is infested by fruit files.
v) The price of pesticides against fruit files increases due to the 10 percent import levy.

1.3 Describe what will happen to equilibrium price and quantity of each of the
commodities given the corresponding hypothetical situations.
i) Coffee: The Philippine Medical Association announces that caffeine in coffee
causes heart attack.
ii) National Bookstore’s Books: Management engages in a one month cut-price
book sale.
iii) Rice: Government imports rice from Thailand.
iv) Pork: Foot and mouth disease (FMD) hits thousands of pigs resulting in very
high mortality rate.
v) Cigarettes: Taxes on cigarettes are increased from P2.00 to P3.00 per pack.

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2) Suppose the demand for gasoline is given by Qᴰ = 100 – 2P and the supply by Qˢ
20 + 6P
i) What will be the equilibrium price and quantity for gasoline?

Tools of Analysis: Demand and Supply

The concepts of demand and supply are among the most important in all economics.
They are of course not the only tools of analysis in the economist’s armoury, but they
allow us to identify and understand the relevant factors in analyzing many economic
situations. It is assumed at this point that students already have some familiarity with
these concepts, but a brief review is in order here, so that we can then see their
application to a situation that has caused considerable controversy in recent years, the
subject of equal prize money in tennis.

a. Demand

In the economic sense demand refers to the quantities that people are or would be
willing to buy at different prices during a given time period, assuming that other factors
affecting these quantities remain the same. For reasons explained in Chapter 3 on
demand theory, there is generally an inverse relationship between the quantity demanded
and the price charged, and this is customarily shown in the downward-sloping demand
curve, although the relationship can equally be expressed in terms of a function or
equation. The demand relationship is determined by many factors, but consumer tastes
are fundamental. This applies both to products and to the services of people in the labour
market.

b. Supply

In the economic sense supply refers to the quantities that people are or would be
willing to sell at different prices during a given time period, assuming that other factors
affecting these quantities remain the same. When talking about the supply of products it
is often the costs of production that are most important in determining the supply
relationship, and generally there is a direct relationship between the quantity supplied
and the price offered, with more being supplied the higher the price. However, in
factor markets, in particular the labour market, supply is more complex. The availability
of people with the relevant skills, the pleasantness of the work and the opportunity cost
involved are all important factors.

In order to get a further flavour of what analysis in managerial economics is all

about, it is useful to consider the next case study, where there have been a lot of views
expressed which show a lack of understanding of economic fundamentals.

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 Case Study Analysis

Case Study : Equal Prize Money in Tennis

A British cabinet minister has now stepped into the debate regarding equal prize money
at Wimbledon, the British Open tennis championships. Patricia Hewitt (no relation to the
men’s winner), the Trade and Industry Secretary, announced that it is ‘simply wrong’
that the winner of the men’s singles should collect £525,000, while the women’s winner
should receive only £486,000, when they had both worked equally hard. The debate
regarding prize money is not new, and has aroused some strong feelings in the last ten
years. The 1996 men’s champion, Richard Krajicek, commented in 1992 that most
women players were ‘fat, lazy pigs’ who deserved to win less. This attracted a storm of
protest from many supporters of women’s tennis, and these supporters and lobbyists have
been successful in gradually reducing the differentials in prize money. Tim Henman, the
British number one player, attracted criticism in 1999 for accusing female players of
being ‘greedy’ in demanding more prize money in ‘Grand Slam’ tournaments. The
situation in 2002 was that in the four ‘Grand Slam’ tournaments the prize money was
equal for men and women at both the US and Australian Opens, but interestingly the
women’s prize money was only half that of the men’s at the French Open.
Let us consider some of the main arguments that have been put forward both for and
against equal prize money:
FOR
1 Women have to train just as long and hard as men.
2 The ball is in play longer in women’s matches, because the game involves more rallies
and less ‘serve and volley’ tactics, according to research by the Women’s Tennis
Association.
3 Female stars are just as popular with the crowds as male players.
4 Unequal pay is an example of unfair discrimination, which in many countries is illegal.
AGAINST
1 Men have to play the best of five sets, while womenonly play the best of three.
Therefore men play longer. Research from Stirling University shows that, on this basis,
men earn less. The 1998 men’s singles champion, Pete Sampras, earned £26,270 per
hour, compared with £42,011 per hour received by the women’s champion, Jana
Novotna.
2 Competition at the top of women’s tennis is less stiff, allowing female stars to compete
in the doubles more easily, and win two prizes. The combination of singles and doubles
prizes for women would exceed the singles prize for men.

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3 Male players attract bigger crowds.
4 Women are not as good as men.
The last point has also raised argument, since it is difficult to make any objective
evaluation. On a purely objective measure, the top female stars serve nearly as fast as the
top male players, but obviously there are many other factors which make a top tennis
player apart from a fast serve. In a recent television interview John McEnroe, never one
to shy away from controversy, opined that the top female seed at Wimbledon in 2002,
Venus Williams, would only rank about number 400 in the world among male players.
Adding another dimension to the debate is sponsorship income. Anna Kournikova has
never won a major tournament; she is currently ranked number 55 in the world. Her
career total prize winnings amounted to just under £3 million at the end of 2001.
However, it is estimated that she has accumulated around £50 million in sponsorship
income, mainly from Adidas, the sportswear supplier. Although sponsorship income
tends to be directly related to the talent of the player, as reflected in computer rankings,
there are obviously other factors that are relevant.
However, one factor that is important here is that sponsorship income is determined
much more by the market forces of demand and supply than is the amount of prize
money in a tournament. The amount of tournament prize money at Wimbledon is
determined by the management committee of the All England Club. What do the public
make of all this? In a recent television poll by the BBC the viewers calling in were nearly
equally divided: 51 per cent thought the men should receive more, 49 per cent thought
prize money should be equal.
Questions
1 Do the observations by Patricia Hewitt make any sense in economic terms?
2 How relevant is hard training to determining prize money?
3 How relevant is length of playing time to determining prize money?
4 Why is sponsorship relevant to the prize money debate? Is it a good idea to relate prize
money to sponsorship?
5 Can you suggest any way of using economic forces to determine prize money? What
about having an ‘open’ championship where men play women, with no distinction
between men’s singles and women’s singles

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