1.5* 2 = 3 Marks
Grannie Mae woke up feeling very excited because her favourite Granny Smith apples have decreased in price due to a very good harvest. Due to her limited food budget she usually bought 1 kilo of apples per week. This time she is going to go to her favourite fruit store and buy three kilos at the lower price.
On her way back home she passed a shop selling the latest walking frame and they had the one which all her friends are using. Granny Mae, who was thinking of buying a regular walking stick, decided instead to buy the walking frame. When purchasing the frame, the store attendant told her that the frames are very popular and they have sold quite a few of them this month.
Two weeks passed and granny Mae was very happy with the walking frame and is now thinking of going to visit her sister in Queensland. She rang her sister and told her that she will visit her next month because the government is increasing her pension.
The latest decline in apartment prices in the capital cities of Melbourne and Sydney are due to several factors. One main factor driving apartment prices down in Melbourne is the increase in new apartments into the market is much greater than the increase in the demand for new apartments. Explain, with demand and supply
diagrams, the impact on price and quantity for new apartments. 2 Marks
Ceteris paribus, at the same time when the demand for yoga service has increased the government has also introduced strict regulations that has resulted in a fall in the number of yoga service providers. Using demand and supply graphs illustrate and explain the impact on the equilibrium price and quantity in the market for yoga
service? (HINT: There is more than one possible outcome). 4 Marks
Assume, in an industry where there are no barriers to entry and firms are making an economic loss in the short run.
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