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The information below represents the expected market demand and supply schedules for iPods - Leaving Cert Economics - Question 2 - 2009
Question 2
The information below represents the expected market demand and supply schedules for iPods. Price Quantity Demanded (units) Quantity Supplied (units) € 100 250 ... show full transcript
Worked Solution & Example Answer:The information below represents the expected market demand and supply schedules for iPods - Leaving Cert Economics - Question 2 - 2009
Step 1
Draw the market demand curve for iPods;
Answer
The market demand curve for iPods can be constructed using the provided data on quantity demanded at different price points. It should slope downwards from left to right, indicating that as the price decreases, the quantity demanded increases. Specifically, the points to plot are:
- At €100, 250 units are demanded
- At €150, 200 units are demanded
- At €200, 150 units are demanded
- At €250, 100 units are demanded
- At €300, 50 units are demanded
Connecting these points will give a downward-sloping demand curve.
Step 2
Draw the market supply curve for iPods;
Answer
To draw the supply curve for iPods, plot the quantity supplied at different price levels, which will show an upward slope, reflecting the law of supply. The points to plot are:
- At €100, 50 units are supplied
- At €150, 100 units are supplied
- At €200, 150 units are supplied
- At €250, 200 units are supplied
- At €300, 250 units are supplied
Connecting these points will yield the supply curve.
Step 3
Show on your diagram: The market equilibrium price for iPods; The market equilibrium quantity for iPods.
Answer
The market equilibrium occurs where the demand curve intersects with the supply curve. From the data provided, the equilibrium price is €200, where the quantity supplied equals the quantity demanded at 150 units. This point should be clearly marked on the diagram.
Step 4
Step 5
The following factors cause the above demand curve to shift: Government introduces a €10 per ticket travel tax;
Answer
The introduction of a €10 per ticket travel tax will shift the demand curve for foreign holidays to the left (from D to D2). This is because the added cost makes holidays abroad less attractive, reducing the quantity demanded at any given price.
Step 6
Show how each of the above developments may shift the demand curve and explain your answer in each case.
Answer
Bad weather during the summer months will shift the demand curve to the right (from D to D2) as people will be less likely to go on holiday domestically and will prefer to seek sunnier destinations abroad. This leads to an increase in the quantity demanded for foreign holidays.
Step 7
State and explain two economic reasons for this development.
Answer
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Drop in incomes: Consumers are less able to afford new cars due to reduced disposable income caused by economic downturns.
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Uncertainty: The fear of job loss leads consumers to delay purchases of significant items like cars, resulting in decreased demand.
Step 8
Explain briefly how this development has affected each of the following: The Irish Motor Industry;
Answer
The Irish Motor Industry has faced losses in profits, leading to closures of dealerships and layoffs. Reduced sales numbers necessitate cost-cutting measures, impacting employment within the sector.
Step 9
Explain briefly how this development has affected each of the following: The Government’s Current Budget.
Answer
The Government's Current Budget suffers due to lower revenues from VAT and other car-related taxes, resulting from decreased car sales. Consequently, the government may face budget shortfalls, affecting public services.