BE-1101: TUTORIAL WEEK 6

Q1. During the COVID-19 pandemic, online streaming services such as Netflix saw a surge in
subscriptions. Discuss the factors contributing to this increase in demand and analyse the
sustainability of this trend post-crisis.

There is an increase in demand for Netflix during COVID-19 due to:

1) income as Netflix offers a relatively low-cost entertainment option compared to other leisure
activities, making it more attractive during the pandemic.

2) substitutes, with lockdowns and social distancing measures in place during COVID-19, people
sought alternatives to traditional entertainment options such as cinemas, concerts, or live events
for Netflix as it is a convenient and relatively affordable option for home entertainment, thus, it
becoming a popular substitute.

3) expectations as there are more people staying at home due to restrictions and remote work
setups, there will be an increased amount of leisure time available for these people. As a result,
individuals are more likely to spend time watching TV shows and movies, leading to a higher
demand for streaming services like Netflix.

Q2.
a) Explain why the supply curve of Toyota Camry is upward sloping.

The supply curve of Toyota Camry is upward sloping because due to the law of supply, when
there is an increase in the price of Toyota Camry, this results in the quantity supplied by Toyota
also increases.

It is evident that firms like Toyota will aim to maximize their profits. If the price of Toyota
Camry cars increases, Toyota may adjust its production levels to maximize profitability. As long
as the marginal cost of producing additional Camry cars is less than the price at which they can
be sold, Toyota will be willing to supply more Toyota Camry cars at higher prices, resulting in
an upward-sloping supply curve.

b) Explain possible factors that can cause the supply curve of Toyota Camry to the right.

There are four possible factors that can cause the supply curve of Toyota Camry to shift to the
right, which is due to:

1) input prices where there is a decrease in the cost of production inputs, such as labour and raw
materials, can lower the overall cost of producing Toyota Camry cars making it more profitable
at each output price which allows Toyota to supply more Toyota Camry cars at each price level,
leading to a right shift of the supply curve for Toyota Camry.
2) technological advancements, improvements in technology can lead to increased efficiency in
manufacturing processes and lower production costs for Toyota. As a result, Toyota can produce
more Toyota Camry cars at any given price, shifting the supply curve to the right.

3) the number of sellers in the market can also influence the supply curve for Toyota Camry cars.
An increase in the number of sellers, such as other automakers entering the market or existing
manufacturers expanding their product lines can lead to an increase competition in the market.
Since there are more competitors such as Honda or Ford, this means there are more supply
sources cars for consumers to choose from. This increased competition can lead to lower prices
and higher quantities supplied. Consequently, the supply curve for Toyota Camry cars shifts to
the right.

4) expectations, for example, the price for Toyota Camry cars in Japan decrease due to higher
efficiency in cars, in response, Australia will increase the supply for Toyota Camry cars to sell at
a lower price which results in the right shift for the supply curve for Toyota Camry cars.

Q3. This question deals with demand and supply and refers you to the table below.
a. Given the table, graph the demand and supply curves for flashlights. Make certain to label
equilibrium price and equilibrium quantity.
b. What is the equilibrium price and equilibrium quantity?

Equilibrium price is the price that equates quantity supplied with quantity demanded and
equilibrium quantity is the quantity supplied and quantity demanded at the equilibrium price.

c. Suppose the price is currently at $5. What problem would exist in the economy? What would
you expect to happen to price? Show this on your graph.

As the economy is
facing a surplus in the demand-supply curve where the quantity supplied is greater than quantity
demanded, sellers would have to try to increase their sales by cutting the product prices by
offering discounts and sales to incentivize consumers to purchase the surplus goods. This could
involve temporary price reductions, buy-one-get-one-free offers, or bundle deals that make the
product more attractive to consumers.

d. Suppose the price is currently $2. What problem exists in the economy? What would you
expect to happen to price? Show this on your graph.
As the economy is facing a shortage in the demand-supply curve which is due to quantity
demanded is greater than quantity supplied, sellers would have to raise their prices in order to
reduce shortage. For example, there is a high demand for masks during COVID-19, which the
supplier will have to increase their price in
order to reduce the quantity demand for masks and increase the quantity supplied to reduce
shortage.

Q4. Consider the market for 2-seater cars. For each of the events listed below, identify which of
the determinants of demand or supply are affected. Also indicate whether demand or supply
increases or decreases. Then draw a diagram to show the effect of the price and quantity of 2-
seater cars:
a. People decide to have more children.

There is a decrease in demand due to

b. A strike by steelworkers raises steel prices.

 There is an increase in supply.

c. Engineers develop new automated machinery for the production of 2-seater car.

There is a decrease in supply.

d. A stock-market crash lowers people’s wealth.

There is a decrease in demand.