Market Demand and Supply Assignments Solution

Market Demand and Supply Assignments Solution

Market Demand and Supply Assignments Solution

Q1.

 1.The demand for Uber rides increases in the presence of tough weather conditions such as severe storms. According to Hörcher and Graham (2018), the level of demand for a commodity is determined by factors such as ease of availability and the number of consumers in need of the merchandise/service. On the other hand, Knees (2016) reveals that demand increases with decrease in supply. In instances of severe storms, the supply of Uber vehicles is limited. Based on the conventional business laws of demand and supply; the demand of Uber services increases with decrease in supply due to the adverse weather conditions.

Comparatively, the original market equilibrium would be distorted if Uber charged uniform rates. According to Hörcher and Graham (2018), the demand for transport is greatly affected by the extent of availability. The fact that the supply of Uber rides is limited during and after severe storms reveals how the equilibrium will be distorted if normal charges are maintained (figure 1).

2. The surge pricing model adopted by Uber is highly necessary as it gives the organization’s drivers the morale of operating in difficult conditions. The price surging technique plays a significant role in increasing the supply of vehicles in the event of a snow storm since the demand for transport services is very high.


Snow increases the demand for Uber rides

3. From a generalized perspective, consumers are better off with Uber’s surge pricing model. The model caters for the consumers’ by allowing them to access rides at lower rates when the supply is high and at an increased charge with decrease in supply.

Q 2.

1. There is need to appreciate the fact that the supply of land is perfectly inelastic. According to Knees (2016), the surface area of land remains constant. Therefore, an increase in the population of a place leads to an increase in the demand for this scarce resource. According to Chow and Niu (2015), the demand for this natural commodity in urban areas continues to increase. According to Hörcher and Graham (2018), the exponential increase in demand is attributed to the fact that land is one of the most significant factors of production. The fact that the supply of land in urban settings cannot be increased explains its demand/ supply curves.

2. The supply of land in urban settings has continued to diminish over the years. On the other hand, the demand for this essential factor of production has seen an exponential increase. Initially, the supply of land for the entire economy was considered to be perfectly inelastic (Hegetschweiler et al., 2017). However, the fact that there is production cost attributed to the land in urban areas associated with construction and maintenance shifts its curve to somewhat elastic.

3. Unlike other taxes that lead to the reduction of the supply of the targeted commodity, taxation of land as a key factor of production does not lead to a minimization in the levels of availability of this scarce commodity. Hegetschweiler et al. (2017) explain that in real settings, imposition of taxes leads to a reduction in the extents of demand for a commodity since consumers are propelled to adopt cheaper alternatives or forego the goods/ services. Comparatively, land boasts of its inelastic supply. On the other hand, Oliner (2016) reveals that in urban settings, land parcels are finite; an aspect that hinders the processes of increasing its supply in instances of shortage.

In urban settings, the demand for land is ever increasing. Oliner (2016) attributes this to the fact that urban populations are on a steady increase. Further, urban areas are considered to be strategically placed to foster economic and industrial productivity. Therefore, imposition of taxes does not lead to a reduction in demand for this scarce resource. Hegetschweiler et al. (2017) reveal that while taxes impact the buying power of the targeted consumers behaviour in an adverse way, the supply of land is constant. On the other hand, Hörcher and Graham (2018) demystify that such levies may also limit the extents to which prospective buyers lease or buy land.

Q 3.

Poghosyan (2014) defines long run equilibrium as a timeframe that is sufficiently adequate to allow businesses to instill the desired changes in their aspects of production. Therefore, the long run equilibrium plays a significant role in allowing firms to undertake total adjustments. The figure below shows the long run equilibrium without government subsidies.

2. The hawkers in the case study are faced with the increasing fixed costs of entry as the greatest challenge to effective establishment of their premises. Currently, hawkers in this market are forced to incur exorbitant fixed costs in order to carry out their operations at constant marginal costs. According to Comin, Lashkari and Mestieri (2015), the hawkers’ decisions of how much they need to produce are highly dependent on the prevailing levels of demand. As revealed in the figure below, there are instances where the prevailing levels of demand for the hawkers’ merchandises is such that the targeted buyers do not show the will of paying a price that is high enough to ensure that the venture recovers its initial investment. As a consequence, Hegetschweiler et al. (2017) explain that government interventions in the form of subsidies are required to ensure that the hawkers remain productive. Therefore, government subsidies play a significant role in increasing the levels of production of firms in a market by minimizing the fixed and variable costs of these ventures.

The subsidies availed by the government of Singapore to the firms in this market will play a significant role in decreasing the prices charged by hawkers in the short run. Comin, Lashkari and Mestieri (2015) explain that in the absence of interventions from the government, the prevailing levels of demand shift in such a way that consumers lack the will of paying higher prices for the hawkers to recover their initial investments. Hegetschweiler et al. (2017) reveal that while the hawkers only care for the profits they get from their engagements, they are faced with the obligation of ensuring that consumer welfare is catered for. Therefore, the government only introduces subsidies for initial investments such as rent and lease fees as a way of encouraging the hawkers to continue the supply of the required goods as shown in the figure below.

In the figure above, the profitability of hawkers in the Singaporean market is hindered with the absence of government subsidies. Therefore, the price charged (P*) is considered to be lower than the average cost (b). With the consumer welfare at zero, the hawkers’ production is limited. Provision of government subsidies equal to P*abc steers the hawkers to increase their output to OQ*.

References

1. Chow, G. C., & Niu, L. (2015). Housing Prices in Urban C hina as Determined by Demand and Supply. Pacific Economic Review, 20(1), 1-16.
2. Comin, D. A., Lashkari, D., & Mestieri, M. (2015). Structural change with long-run income and price effects (No. w21595). National Bureau of Economic Research.
3. Hegetschweiler, K. T., de Vries, S., Arnberger, A., Bell, S., Brennan, M., Siter, N., ... & Hunziker, M. (2017). Linking demand and supply factors in identifying cultural ecosystem services of urban green infrastructures: A review of European studies. Urban Forestry & Urban Greening, 21, 48-59.
4. Hörcher, D., & Graham, D. J. (2018). Demand imbalances and multi-period public transport supply. Transportation Business Research Part B: Methodological, 108, 106-126.
5. Kneese, A. V. (2016). Transportation and urban land. Routledge.
6.Poghosyan, T. (2014). Long-run and short-run determinants of sovereign bond yields in advanced economies. Economic Systems, 38(1), 100-114.