05 Jun Assignment Length:no more than 2500 words(including graphs, tables etc). Font size: 12; Margins: 2.5 cm on all sides
Question
Assignment
Length:no more than 2500 words(including graphs, tables etc).
Font size: 12; Margins: 2.5 cm on all sides
PART A
Activity 1
You are given the following information in relation to the market demand and supply of Ford cars:
Ford Cars: Market Demand and Supply
Price ($)
Quantity demanded/sold
Quantity supplied
Price elasticity of demand
Total Revenue
20,000
40,000
10,000
25,000
35,000
15,000
30,000
30,000
20,000
35,000
25,000
25,000
40,000
20,000
30,000
45,000
15,000
35,000
50,000
10,000
40,000
(i) Draw the market Demand and Supply curves (on the same graph) for Ford. [5 marks]
(ii) What is the market equilibrium price and quantity? [5 marks]
(iii) Explain what you will observe in the market if the Ford car price is set at a higher than equilibrium price. [5 mark]
(iv). suppose you are managing director of Ford Australia, and you are wondering whether or not to cut the price of Ford cars to increase your total revenue from sales. Explain how your knowledge of elasticity of demand can help you make this decision. Complete the last two columns of the above table and also draw a graph to explain your answer. [8 marks]
(v). suppose car industry is very competitive and Ford has been losing its competitiveness in
the car market. Suppose that the government is providing substantial financial support to
Ford manufacturers with the view that it will improve Ford’s competitiveness. Evaluate the
merits and demerits of this government policy measure. [7 marks]
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