UOL Introduction to Economics Perfect Competition Long Question, SMS 9758-7925 for UOL Intro to Econs tuition

This is a typical example of perfect competition question. Questions to ask yourself:

• Do you know how to start? 
• Do you know what type of question this is? 
• Do you know how many graphs you have to do?

Both city dwellers and country folks (rural communities) demand musical concerts. The price elasticity of city dwellers’ demand is greater than unity (a lot of choice) while that of the rural community is less than unity (desperate for some culture). City dwellers believe that theatre and music are gross substitutes while in the rural community they are perceived as complements. Assume that all performers live in the city and that transportation costs between the city and the country are added in full to the ticket price.

1. (a)  Describe the initial equilibrium in the market for musical events.
   
2. (b)  Analyse the effects of an increase in the price of theatre tickets which affects only city dwellers (this means that rural theatre productions are subsidised).
   
3. (c)  Community leaders in the countryside complained that in spite of the subsidy for theatre in the countryside, it is the rural community which paid the price for the increase in the price of theatre for city-dwellers. Would you agree with this statement?
   
4. (d)  What would happen if the government offered a subsidy to cover the transportation costs of musical events? 
   

Are you still having problems with answering questions like this? SMS 9758-7925 or email us for help now