Microeconomics, Monopoly, and Vertical Integration

Assignment 1: Microeconomic Analysis
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Assignment 1: Microeconomic Analysis
1 A graph showing wheat market change resulting in lower wheat prices
From the above graph, it can be denoted that when the price of the wheat decreases from Pe to P1, the amount of wheat demanded will increase from Qe to Q1. Several factors can occasion the price decrease; firstly, the world production of wheat may have increased, leading to an increased supply, or secondly by a drop in the prices of the close substitutes of wheat such as corn. Since the wheat price reduces, there is a movement along the demand curve as depicted above.
2 Substitute(s) for wheat
The close substitutes of wheat would include coarse-grain commodities such as corn, barley, and grain sorghum and not excluding millet. The reason for this selection is due to these commodities being able to be used in the production of products that initially required wheat as a primary factor of production.
3 Effect of the lower price of wheat on the price of substitute grains
The lower price of wheat would mean increased demand for it, and therefore, the consumers won’t consume the substitute grains in the short run, but in the long run, the prices of substitute grains would be lowered to match the price of the wheat and encourage their consumption.
4 A graph showing the market change for substitute grain due to lower wheat price
The above graph shows that the quantity demanded of the substitute would decrease due to the reduced price of the wheat in the previous case. According to the economic theory, when the price commodity goes down, its demand will increase. In contrast, on the other, the demand for its close substitute will reduce, leading to such an outcome as depicted by the above graph.
5 Non-price determinants to wheat and substitute grains market changes
These refer to other factors other than the price of the commodities that determine its demand. These include:
Income of the consumers
The income of the potential consumers would greatly affect the demand for wheat and its substitute grains. When the income of the consumers is high, the demand for these products will shift to the right, thus leading to increased demand, while on the other hand, if the income is expected to be low, the demand for wheat and substitutes will be lower.
The number of the potential consumers
When the number of potential consumers is assumed to be high, the demand for wheat and substitute grains will be high. On the other hand, if a smaller number of potential consumers are assumed, the demand for wheat and substitute grains will decrease.
The prices of the related products
When the prices of the related commodities are expected to be high, the consumers will demand more wheat and its substitute grains. On the other hand, if the prices of related products are low, the demand for wheat and substitute grains will be reduced.
Case study 2
1 Examples of explicit costs for ironing and repairing clothes business
Cost of sewing machines, iron, pieces of clothes, 12-month lease cost. These costs are explicit since they are paid directly from the busi...