Unit 1: Demand & Supply
Unit task: In January 2019, some tabloid newspapers reported disapprovingly on the recent rise in train fares, arguing that “the ticket prices were increased despite overcrowding getting worse last year”.
1. Evaluate this statement (in particular, the use of the word “despite”) from an economic standpoint, using your knowledge of how changes in demand affect equilibrium prices.
2. Illustrate your answer with two diagrams of supply and demand for rail travel:
• Before overcrowding happened (market in equilibrium) and
• during & after overcrowding (during overcrowding: an out-of-equilibrium point in the diagram; after overcrowding: the equilibrium point in the same diagram denoting the rail companies’ pricing response).
the Rail fares is on the UK
Word limit: 200 words maximum, not including the diagram.
Unit 3: Market Structure
Unit task: The global revenue of Groupon – an e-commerce marketplace – reached 3bn dollars in 2016.
1. Using your knowledge of price discrimination, explain why thousands of businesses choose to sell their services on Groupon.com, at a fraction of the official price charged on those businesses’ own websites.
2. Illustrate your answer with a diagram of the appropriate degree of price discrimination.
3. Why do some customers still pay the non-discounted official prices, instead of buying a Groupon deal?
Unit 4: Markets, Efficiency and the Public Interest
Unit task: In April 2018 the UK introduced “sugar tax” on drinks which contain more than 5g of sugar per 100 ml. By imposing the tax the government is hoping to correct the negative externality imposed on the society by people with unhealthy diets (the NHS spends £6bn a year on treating obesity-related diseases).
1. What is the likely effect of the tax on the equilibrium price and quantity on the market of sugary drinks?
2. Illustrate your answer with a diagram of this market. On the diagram,
• show the demand curve and the supply curve before the tax was imposed (equal to MC of the industry) and
• the supply curve after the tax was imposed (equal to MC of the industry + tax).
3. Can the producers of sugary drinks do anything to reduce the amount of tax they pay?
Unit 6: The Global Business Environment
Unit task: In September 2018, the US imposed its latest round of tariffs on Chinese imports, including a 10% tariff on appliances.
Illustrate the effect of the tariff with a diagram, assuming for simplicity that this tariff was imposed on appliances imports from all foreign countries.
1. On the diagram, show the domestic demand curve, the domestic supply curve and the world supply curve.
2. What happened to the equilibrium price after the tariff was imposed?
3. Did American producers of appliances win or lose? Did American consumers of appliances win or lose?
4. Whose loss (or gain) was larger?
