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Critically examine the differences between 'a change in demand' and 'a change in quantity demanded'.

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Introduction

1a. Critically examine the differences between 'a change in demand' and 'a change in quantity demanded'. First of all, we have to know what is meant by 'demand' and 'quantity demanded'. 'Demand' is defined as the different quantities of a good the individual is willing and able to buy at different prices over a specific period of time. Quantity demanded refers to the quantity of that good the consumer is willing and able to buy at a specified price. A change in demand is triggered by a change in the other factors while the price of the good remain unchanged. For example, Peter used to buy 10 apples per week at $1 each. His doctor told him that apple is good for his health; so Peter buys more apples (12 per week) then usual even the price remain unchanged. To conclude, there is a change in the purchase plan of the consumers. Graphically, an increase in demand resulted in a shift of the entire demand curve to the right: (from D1 to D2) On the other hand, a decrease in demand resulted in a shift of the entire demand curve to the left: (from D1 to D2) A change in quantity demanded is caused by a change in the price of the good while all the other factors are held constant. According to the Law of Demand, when the price of a good goes up, the quantity demanded of it will go down and vice versa, ceteris paribus. For example, Anna used to buy 8 oranges at the price of $1 each per week. One day, the price suddenly increase to $2 each, and Anna decided to buy less of it because it is too expensive for her. Finally, she bought 6 instead of 8 per week. To conclude, the consumer changes the quantity demanded solely in response to a change in the price of the good while all the other things remain unchanged. ...read more.

Middle

The marginal revenue curve of a perfectly competitive firm is the same as its demand curve If the firm is a monopolist (which does not practice any price discrimination), to sell one more unit of its product, the monopolist needs to lower its price not just for this extra unit but all previous units sold as well. So, the marginal revenue will be much lower than the price. The marginal revenue will always lie below the demand curve. Usually, it should be twice as steep as the demand curve or halfway between the demand curve and the vertical axis. The marginal revenue and demand curve of a monopoly Marginal cost is the change in the total cost incurred by the producer when one extra unit of good is produced. No matter whether a firm is a price taker or a price searcher, to maximize profit, it must produce at the point where MC=MR. If MR > MC, the monopolist gains profit by increasing output. If MR < MC, the monopolist gains profit by decreasing output. If MC = MR, the monopolist is maximizing profit. Thus, MC=MR is the profit-maximizing rule for a monopolist. Let's examine why there is inefficiency for monopoly. The graph below illustrates the comparison of a perfectly competitive market and a monopoly in terms of price and output. As monopoly, a marginal revenue curve lies halfway between the demand curve and the vertical axis. Equilibrium occurs where the marginal cost curve intersects the marginal revenue cost curve at Em. At Em, the equilibrium quantity is Qm, and the price that this monopolist can charge is Pm. In comparison with a perfectly competitive market, a monopolist will charge a higher price but produce less output. On the other hand, consumers in fact are willing to pay a higher price for an extra unit of the good than the cost which the monopolist needs to incur in order to produce that extra unit. ...read more.

Conclusion

Let's examine whether the newspaper market in Hong Kong is an oligopoly or under monopolistic competition. First of all, let's look at the number of sellers in the newspaper market. As we know, the newspaper market in Hong Kong is dominated by a few large publishers which are Oriental Daily News, Apple Daily and The Sun. But there are still a lot of small publishers such as Hong Kong Daily News, Ming Pao, SingTao. It is one of the characteristics of an oligopoly. Although there is no government restriction such as franchises that prevents free entry, the initial set-up cost is prohibitively high, and the three large ones have lower per unit cost brought about by economies of scale. The goods they produce (newspapers) are close substitutes, but there are some differences between them such as the style. For example, some newspaper put more emphasis on reporting the truth and some are more entertaining. It seems that the newspaper market in Hong Kong is an oligopoly. In response to the dependency of price setting, the newspaper market in Hong Kong is interdependent. Most of the newspapers in Hong Kong now are priced at $6. Publishers' attempt to lower or increase the price may lead to price war or a loss in business. Most of the publishers will not take this risk. They are engaging in non-price competition either. In order to attract readers, they try their best to improve the quality of their newspaper. They try to do more research in order to find out what readers really want. This is also one of the characteristics of an oligopoly. According to the above characteristics, we can say that the newspaper market in Hong Kong is an oligopoly. Reference SS101 Social Sciences: A foundation Course Unit 7 and 8, Open University of Hong Kong, 2001 David C. Colander, Economics, fifth edition, , Middlebury College Samuelson, Paul A (2001) Economics, 17th edn, McGraw-Hill Education. TSANG SUK MEI 03514342 TMA 8 PAGE1 ...read more.

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