Micro Economics Analysis

1. The article suggests that beef and chicken are substitutes. That is, they are goods that can be used in place of each other.

1. A decrease in beef supply by 3.6% caused by an increase in ‘feed and energy prices’ resulted in the supply curve of beef to shift to the left. This caused an increase in price from P1 to P2 and a decrease in quantity supplied from Q1 to Q2. The increase in demand for chicken was a result of an increase in price of beef. This caused a shift to the right in the demand curve for chicken, as illustrated on the graph.

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1. Ticket scalping is when an individual buys tickets to an event, and then resells the tickets at a much higher price. Ticket scalpers are able to do this, as the demand for tickets is relatively inelastic. This is because there is no substitute for tickets to go and see One Direction.  

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1. Ticket scalping has no effect on the producer surplus. When the tickets are initially sold at sold at P1, the producer surplus is the areas D and E. When the tickets are resold by the ticket scalpers at P2, the producer surplus remains unchanged (D and E) and the ticket scalpers gain the extra profit, which are the areas A and B.

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The initial consumer surplus is the areas A, B and C, however when the tickets are resold by the ticket scalpers at a higher price (P2) to what they purchased them for (P1), the consumer surplus becomes the area C. The consumers loose the areas labeled A and B

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1. Concert venue might sell tickets at less than the market-clearing price to ensure that all tickets are sold. The law of demand suggests that if the price is lowered, then the demand for the good will increase, creating a greater chance that all tickets are sold.

If a tax were imposed on the sellers of fast food chains, a shift to the left in the supply curve would occur (decrease). This causes a rise in the equilibrium price and decrease in the equilibrium quantity. Imposing a tax on fast food suppliers increases their costs, therefore resulting in a price increase for fast foods.

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This is in comparison to a government restriction on the amount of advertising of fast foods, which would cause a decrease in the demand for fast food because consumers are no longer exposed to advertisements from the fast food chains.  This results in a decrease in equilibrium price and decrease in equilibrium quantity traded.  

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As the price elasticity of demand for fast foods is inelastic, an increase in price as a result of a tax will cause an increase in revenue and will not affect the quantity demanded from consumers. Hence, this is not an effective intervention. This is in comparison to an advertising restriction on fast food, where the restriction decreases the quantity demanded by consumers as well as decreases the price, as the price elasticity of supply is elastic. Consumers are no longer exposed to anything that may tempt fast food consumption, causing demand to drop by a greater amount than if a tax were imposed. Furthermore, suppliers will supply less fast food if that are receiving a lower price. Therefore an advertising restriction is the more effective out of the two government interventions.