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Show, by means of a labelled diagram, the market demand and supply curves for games consoles e.g - Leaving Cert Economics - Question 1 - 2009
Question 1
Show, by means of a labelled diagram, the market demand and supply curves for games consoles e.g. Xbox, PlayStation, Nintendo DS. Identify and explain the market equ... show full transcript
Worked Solution & Example Answer:Show, by means of a labelled diagram, the market demand and supply curves for games consoles e.g - Leaving Cert Economics - Question 1 - 2009
Step 1
Show, by means of a labelled diagram, the market demand and supply curves for games consoles.
Answer
To illustrate the market demand and supply for games consoles like Xbox, PlayStation, and Nintendo DS, we draw a supply and demand graph. The vertical axis represents price, while the horizontal axis represents quantity. The demand curve (D) slopes downwards, indicating that as price decreases, demand increases. In contrast, the supply curve (S) slopes upwards, signifying that as price increases, quantity supplied increases. The point where the two curves intersect is the market equilibrium (E), indicating the equilibrium price (PE) and quantity (QE) for games consoles.
Step 2
Explain, with the aid of a separate diagram in each case, the effects which each of the following is most likely to have on the above equilibrium position: 50% reduction in the price of computer games used with the games console.
Answer
In this scenario, the demand curve will shift to the right to D2, as the reduction in price for computer games makes gaming more appealing, thereby increasing demand for consoles. This results in a new equilibrium price (P2) and a higher quantity (Q2) sold.
Step 3
Explain, with the aid of a separate diagram in each case, the effects which each of the following is most likely to have on the above equilibrium position: Quota placed on the quantity of games consoles entering Ireland.
Answer
With a quota, the supply curve will shift to the left to S2, limiting the number of consoles available. This leads to a higher price (P2) and lower equilibrium quantity (Q2), as less supply causes increased competition among consumers for the available consoles.
Step 4
Explain, with the aid of a separate diagram in each case, the effects which each of the following is most likely to have on the above equilibrium position: Government introduce a 2% levy (tax) on all income earned.
Answer
The introduction of a tax on income will likely decrease consumers' disposable income, leading to a leftward shift in the demand curve to D3. This results in a lower equilibrium price (P2) and quantity (Q2), as consumers may choose to reduce spending on non-essential items such as gaming consoles.
Step 5
Define income elasticity of demand and price elasticity of demand.
Answer
Income elasticity of demand (YED) measures the responsiveness of the quantity demanded of a good to changes in consumers' income. A positive YED indicates a normal good, while a negative YED indicates an inferior good. Price elasticity of demand (PED), on the other hand, measures how the quantity demanded of a good responds to changes in its price. A PED greater than 1 indicates elastic demand, while a PED less than 1 signifies inelastic demand.
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Step 9
Assume Income elasticity of demand for games consoles is +2.5 and total sales in 2008 were 100,000 units. Calculate the expected total sales for the year if consumers' incomes are expected to fall by 8% in 2009. Show your workings.
Answer
If income decreases by 8%, the change in sales can be calculated using:
Sales Change (%) = Income Elasticity x Income Change (%)
Thus, Sales Change (%) = 2.5 x (-8) = -20%
Therefore, expected sales will decrease by 20% of 100,000 units:
Expected Sales = 100,000 - (0.20 x 100,000) = 80,000 units.
Sales in 2009 will equal 80,000 units.