BBM 102: Consider Figure 1 below, which depicts the rubber market in Malaysia At the initial market equilibrium: Microeconomics Assignment, WOU, Malaysia

University Wawasan Open University (WOU)
Subject BBM 102: Microeconomics

Question 1

Consider Figure 1 below, which depicts the rubber market in Malaysia. At the initial market equilibrium, the total quantity produced is 500 kg per year and the average price is RM7 per kg.

(a) A sudden increase in demand for rubber causes the demand schedule to shift from D to D*. Explain the adjustments in prices and quantity that would take place after the increase in demand
(b) Calculate the price elasticity of supply for rubber, and comment on the degree of elasticity

(c) There is a sudden and drastic change in weather conditions, causing the supply of rubber to fall from S to S’ (Figure 2 above). Compute the price elasticity of demand, and comment on the degree of elasticity

(d) Seeing that prices have increased to RM17, the government considers setting a price ceiling policy to stabilize prices. Explain the effects of this policy if the price is fixed at RM18
(e) Elaborate on the effects of the price ceiling policy if the price is fixed at RM10. Explain if your answer differs from part (d)

Question 2

(a) Explain the effects of a price floor policy on the welfare of producers and consumers
(b) Elaborate on the concept of economies of scale

Question 3

(a) Contrast between perfect competition and oligopoly (20 marks)
(b) Distinguish between monopoly and monopolistic competition

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