Module 1 – Case
SUPPLY AND DEMAND
Assignment Overview
Before beginning this assignment,
make sure you have gone carefully through all of the required readings for this
module. It is very important to carefully absorb the general concepts as well
as the numerical examples in the background readings. For this assignment, you
will have to answer some purely conceptual questions, as well as some numerical
problems. For conceptual questions, make sure to thoroughly explain your
answers and to cite specific readings from the required background materials to
explain your answers. For numerical problems, make sure to show all of your
work and explain how you arrived at your answers (partial credit can be given
if you get the final answer wrong but do some of the steps correctly).
Case Assignment
Part A: Conceptual questions
Suppose you own a pet shop. Your
sales are decent but a marketing consultant tells you that you could increase
your sales and be able to charge a higher price if you spend some money on
local television ads. If the consultant is right, will advertising lead to an
increase in quantity demanded? Or a shift in the demand curve? Both? Neither?
Explain your answer and make sure to cite at least one of the required readings
in your answer.
You are the owner of a furniture
factory. You normally produce 100 pieces of furniture a day because that is how
much you can produce given the amount of qualified workers in your town and the
amount of reasonably priced wood that you can purchase locally. Then one day
you get an order from a large national retail chain who wants to purchase 200
pieces of furniture a day from you. You are hesitant, as you will have to pay
higher wages to get some qualified workers to move to your town. You also will
need to pay higher prices for wood because you will no longer be able to rely
solely on local suppliers and will have to spend more on shipping wood from
other towns. But you drive a hard bargain and the retail chain agrees to pay
one and a half times your normal price. Does this situation describe a change
in quantity supplied? A shift in the supply curve? Both? Neither? Explain your
answer and make sure to cite at least one of the required readings in your
answer.
Suppose marijuana has just been
legalized in your state. Nobody in your home town wants to start a marijuana
business, as this would be too much of a stigma. But being an MBA student, you
know a good business opportunity when you see one and decide to take a stab.
Shortly after starting up your business, you gain a loyal following of
customers and start raking in some steep profits. However, the local government
decides that they want a cut of your profits and starts charging a 20% sales
tax on marijuana. Do you think this would lead to a 20% or greater loss in
sales? Do you think marijuana in this situation would be facing inelastic or
elastic demand? Explain your reasoning, and make sure to cite at least one of
the required readings regarding elasticity.
Part B Quantitative Problem
Suppose the demand function for a
new smartphone can be expressed as QD = 1000 – 1.5P with QD being quantity
demanded and P being price. The supply function can be expressed as QS = 50 +
2P
Fill out the following table using
the above equations:
Price
Quantity Demanded
Quantity Supplied
Surplus Amount or Shortage Amount
200
220
240
260
280
300
320
340
Now answer the following
questions:
What is the equilibrium price? You
can compute this either using Microsoft Excel, or by using algebra from the
equations above and solving for a price where quantity supplied equals quantity
demanded. Show your work by either showing the algebra steps or by showing how
you used Excel to calculate.
Suppose the supply function
changes to 100 + 2P. What is the new equilibrium? Show your work by either
showing the algebra steps or by showing how you used Excel to calculate.
Assignment Expectations
Answer the assignment questions
directly.
Stay focused on the precise
assignment questions. Do not go off on tangents or devote a lot of space to
summarizing general background materials.
For computational problems, make
sure to show your work and explain your steps.
For short answer/short essay
questions, make sure to reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11-14 on in-text citations. Another
resource is the “Writing Style Guide,” which is found under “My Resources” in
the TLC Portal.
Module 1 – SLP
SUPPLY AND DEMAND
For the SLP this session, come up
with an idea for a business you would like to start someday. This should be a
business in an industry that you are familiar with and can find a lot of
information about. This could be a type of business that you are currently
working for or have worked for in the past, or a type of business that you are
a frequent customer of. Finally – since you will have to make estimates about
costs of starting up the business or what type of price you can charge, it is
best to keep your business idea relatively simple.
For this first SLP, discuss your
business idea and do some initial research on what prices your potential
competitors in your home town are charging. More specifically, write a
three-page paper discussing the following issues:
What business do you want to
start, and why? Explain your personal connection to this type of business and
discuss sources of information about this business that you plan to use for
your SLP.
What prices are these businesses
in your chosen industry charging? Try to get at least ten examples of
businesses and the prices they are charging, and create a table that lists the
prices and any other relevant information, such as whether the product they
sell is high-end quality or lower-end quality.
Do you notice a large range of
prices that businesses are charging for the service or product? If so, what
factors do you think explain the range of prices? Is it the quality of the
product or service, location of the business, amount of advertising done by
each business, other?
Based on your answers to Questions
1 and 2 above, do you think your product or service will have elastic or
inelastic demand? You don’t have to do any calculations since you probably
won’t have access to sales data on the businesses you are looking at – but
based on the range of prices, you should be able to get an idea about how
sensitive consumers of your product or service will be to changes in price. In
addition to your own research about prices in your home town, cite some of the
required background reading on elasticity to justify your answer.
SLP Assignment Expectations
Answer the assignment questions
directly.
Stay focused on the precise
assignment questions. Do not go off on tangents or devote a lot of space to
summarizing general background materials.
Make sure to use reliable and
credible sources as your references. Articles published in established
newspapers or business journals/magazines are preferred. If you find articles
on the Internet, make sure they are from a credible source.
Reference your sources of
information with both a bibliography and in-text citations. See the Student
Guide to Writing a High-Quality Academic Paper, including pages 11- 14 on
in-text citations. Another resource is the “Writing Style Guide,” which is
found under “My Resources” in the TLC Portal.
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