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Economics for Business

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Question 1 [10 marks]

Suppose the expected market demand for tickets to the Australian Open golf tournament to be held in Queensland in November is given by D = 40,000 -1,000P and the supply of tickets is S = 20,000.

Tickets for a golfing tournament have negligible Marginal cost. Hence supply will be Perfectly Elastic. This means that 20 000 tickets will be supplied regardless of demand

Demand = (40,000 – 1,000 * Ticket Price) tickets Supply = (20,000 + 0*Ticket Price) tickets

a. What is the equilibrium price of a ticket to the tournament? How many tickets will be sold? [2 marks]

At equilibrium price: Supply = Demand 20,000 = 40,000 – 1,000P 1,000P = 20,000 P = 20 Equilibrium Price is $20

At price = $20: Supply = 20000 + 0*price = 20000 The Number of tickets sold is 20,000

b. Draw a diagram illustrating the demand and supply curves and the equilibrium price and quantity. [1 mark]

[pic]
The rising incomes of mine workers in Queensland, who happen to be big golf fans planning to attend the tournament, has resulted in a new demand curve given by D = 70,000 – 2,000P. Supply of tickets to the tournament remains at S = 20,000

Demand = (70,000 – 2,000 * Ticket Price) tickets Supply = (20,000 + 0*Ticket Price) tickets

c. What is the new equilibrium price of a ticket to the tournament? How many tickets will be sold? [2 marks]

At equilibrium price: Supply = Demand 20,000 = 70,000 – 2,000P 2,000P = 50,000 P = 25 Equilibrium Price is $25

At price = $25: Supply = 20000 + 0*price = 20000 The Number of tickets sold is 20,000

d. Illustrate the new equilibrium price and quantity on your diagram

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