ECO701 Economics and the Business Environment Coursework

- June 23 Semester

Coursework 1
This coursework contains a series of questions. Please complete all of the questions utilising economic
concepts, models and wider reading. There is no specific format required i.e. report or essay format, but
you are expected to write in appropriate Professional and Academic English. Please note the question that
you are addressing and provide an answer to the question.
The word limit of this coursework i.e. completion of all questions is 2000 words (excluding graphs, tables
and references).
The Deadline for submission is by 23:59 on the 16/07/2023. Submissions should be made via the
Blackboard site for this module. The submission link can be found in the Assessment section, titled as:
Coursework 1 Deadline: 16/07/23 by 23:59.

Question 1

In this question assume the role of a consultant who has been hired to advise a relatively new company that makes
puzzle games/apps for smartphones and tablets. The app/games is free to download and play. The company makes
most of its revenue from in app purchase and adverts that are played when using the app. Therefore, demand/usage
of the app is very important for the company. Using your knowledge of Demand address the following questions. All
answers provided must be justified. Be sure to utilise relevant graphs and wider reading to support your answers.
(Note only consideration of the demand curve is required for these questions).

a. The Owners of the company noticed some recent changes in the market. For each of the noted changes
explain the likely effect on the demand of their puzzle games/apps.
i. Increases in the prices of data usage needed to play apps/games on smartphones and tablets
ii. Increases in marketing by a rival company that also makes similar apps and games
iii. A shift in consumers wanting to play games on consoles, PCs or laptops
iv. A news report is released stating that playing puzzle games increases the brain’s problem solving and
concentration abilities

(10 marks)

b. The Owners share data they have gathered regarding their attempts to change prices and prices changes of
potentially related products. The Owners are looking to change the prices of their in-app purchases to see if
they can make more money. Using your knowledge of Elasticity, identify/solve relative elasticities, interpret
the answer and provide any applicable advice to the company. (Please give numerical answers to 2 decimal
places)
i. When the Owners changed the price for getting more lives/attempts to complete the puzzle from
£0.99 for 5 additional lives/attempts in Quarter 1 to £1.99 for 5 additional lives/attempts in Quarter
2, sales changed from 10500 in Quarter 1to 10000 in Quarter 2. Calculate the price elasticity of
demand between Quarter 1 and Quarter 2. Given your answer, what suggestions would you make to
the Owners regarding changing their prices?

ii. When the Owners changed the fee for their boosters (in app/game items that help to solve the
puzzles) £5.99 for a package of boosters Quarter 1 to £6.99 for the same package of boosters

1
 Quarter 2, sales changed from 12000 in Quarter 1 to 9000 in Quarter 2. Calculate the price elasticity
of demand between Quarter 1 and Quarter 2. What suggestions would you make to the Owners
regarding changing their prices given your answer?

iii. The Owners allow consumers to agree a monthly rate for a special package of boosters. Consumers
can choose to come off the monthly rate at any time for the special package of boosters. The
average income of consumers that agree the special package of boosters decreased from £2500.00
per month to £2200.00 per month. The sales of the monthly special package decrease from 9000 to
6500 during this time period. Calculate the income elasticity of demand and identify whether the
protection software is a necessity or a luxury good.

(12 marks)

Question 2

Answer the following short questions:

a) George bought a case of six wine bottles from the Booze-R-Us shop. He paid £150 for it and received
consumer surplus of £30. What was George's willingness to pay for the case?
b) When the price elasticity of demand is -0.13, what is the percentage change in revenue if Netflix increases
the subscription fee by 5%?
c) The price of good Y decreases by 12% and the quantity of good X sold increases by 6%. What is the cross-
price elasticity of demand for good X with respect to good Y? How are good X and good Y related?

(10 Marks)

Question 3

A market analyst asks for your help to forecast changes in different markets. The market analyst would like you to
look at the following markets; a) Traditional action figures (toys), b) Tools for potting and caring for plants, c) Exotic
fruits, d) Camping equipment.

When conducting research related to the relevant markets the following articles appear to give strong indication of
relevant market changes: Children are playing less with traditional toys and more on electronic devices; Tending to
plants became a popular hobby for many during national lockdowns, a hobby that people have continued; There
are numerous reports and articles citing excellent health benefits for exotic fruits; There is a disruption to the
supply chains for supermarkets, particularly with imported fruits and vegetables; There is an increase in popularity
for camping as an alternative to expensive holidays. There are increases in the number of providers of camping
equipment.

Given the above-noted articles, consider how they may affect the market price and quantity of the markets that you
are reviewing. Ensure that you use supply and demand diagrams to support your answers.

(10 marks)

Question 4

State whether the following statements are correct or not and briefly explain why

A. Diseconomies of scale justify horizontal expansion of firms into unrelated fields.

B. Economies of scale lead to a downward sloping marginal cost curve
C. Elasticity of demand remains constant throughout the product cycle.
(10 marks)

2
Question 5

The supply and demand for hazelnuts are given by QD = 9000 – 15P and QS = 10P, where P is price per bag (in pence)
and Q measures bags per day. (It would be useful to illustrate the factors noted in a demand and supply diagram to
make aspects clearer to see). Please also abstract from the question the government potential funding of the price
floor.

a) What is the equilibrium price and quantity?

b) Calculate consumer and producer surplus
c) Suppose the government imposes a price floor of 400p per bag. Is there a shortage or surplus of peanuts
and, if so, what is the size?
d) Calculate consumer and producer surplus with the price floor.
e) What is the size of the deadweight loss?

(15 marks)

Question 6

Ashley sells hand-made scarves in a perfectly competitive market for £20 per scarf. Ashley’s fixed costs are £15, and
she is capable of producing up to 6 scarves per week.

a) Use that information to fill in the table below. (Hint: The variable cost of the first unit of production equals
its marginal cost and total variable cost is simply the sum of the marginal costs up of the units of production
up to any particular quantity of output)

Quantity Total Fixed Variable Cost Total Profit= Revenue Marginal Marginal
Revenue Cost Cost – Total Cost Revenue Cost
0 0 15 0 0 0 --- ---
1 20 15 10 25 -5 20 10
2 40 15 14 29 11 20 14
3 60 15 20 35 25 20 20
4 80 15 29 44 36 20 29
5 100 15 40 55 45 20 40
6 120 15 54 69 51 20 54

b) Given the Profit Maximising condition, what quantity of scarves should Ashley produce in order to maximize
her profit?

c) Ashley finds a new place to sell and a new supplier so her fixed cost falls to £10 and there would be a change
to her variable costs. However, due to a decrease in market demand the selling price has changed to £15 per
scarf. Information related to Ashley’s new cost and revenue projection is given in the table below. Calculate
the new revenues and costs as per this new change and the table below. Does the quantity that Ashley
should produce change given the new costs?

Quantity Total Fixed Variable Cost Total Profit= Revenue Marginal Marginal
Revenue Cost Cost – Total Cost Revenue Cost
0 0 10 0 10 0 --- ---
1 15 10 10 9 6 15 10
2 30 10 24 34 -4 15 14
3 45 10 44 54 -9 15 20
4 60 10 73 83 -23 29
5 75 10 40
6 90 10 54
(15
Marks)
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Question 7

Conduct an analysis of market structures:

Are perfectly competitive markets and their outcomes more preferred than monopolies? Compare the market
structures and perfect competition and monopolies, and then analyse the advantages and disadvantages of these
market structures from the perspective of consumers, producers and a welfare maximising government.

(8 marks)

Question 8

Using the relevant demand-supply-market equilibrium graph explain why the party who pays a tax by law is not
necessarily the same as the party who bears the larger burden of a tax.
(10 marks)

Total marks available: 100

Q 2 Q 1
1 2 5 5
Q 1 Q 1
2 0 6 5
Q 1 Q
3 0 7 8
Q 1 Q 1
4 0 8 0

Plagiarism

Plagiarism is the act of taking or copying someone else’s work, including another student’s, and presenting it as if it were one’s
own. The University’s policy is that plagiarism, whether deliberate or unintentional, is a form of cheating and is unacceptable.
The University has a plagiarism policy in place with the framework of penalties available at
http://www.ulster.ac.uk/academicservices/staff/offences.pdf

Exceeding the word limit

Penalties for exceeding the word limit:
Up to 10%: no penalty
11-20%: 10% deduction
>20%: fail, with a mark of zero awarded