the market for face masks in a New Zealand city

Questions:

This question is related to the market for face masks in a New Zealand city. In December 2019, the market demand and supply for the N95 respirator face mask could be represented by the following equations:

Demand: P=10-6Q.
Supply: P=2+2Q
where Q=quantity (in 10,000 pieces (pcs)) and P = price (in NZ dollars per piece),

  1. For the price change range from $6 to $7 per piece, find the price elasticity of demand. (Hint: You need to find the corresponding quantity demanded based on the demand equation for each case). Use 2 digits decimal points for the calculations of price elasticity for this question. Show your formulation and calculations.

Is demand price elastic or price inelastic in that price range?

 

  1. Based on the demand and supply equations provided above, work out the market equilibrium quantity and price for N95 respirator masks in 2019 in the city. Clearly show your formulations and calculations (Use one digit after the decimal for this part and the rest of the assignment).

 

  1. Draw a demand and supply graph of the market for N95 respirator market in the city in 2019 based on the above information, clearly indicating the equilibrium quantity and price. (Remember to label the axes and draw your diagram to scale!)

 

 

  1. Use consumers’ willingness to pay measure to determine whether demand is price elastic or price inelastic at that price. Show your calculation and reasoning briefly.

 

  1. In May 2020, because of the COVID-19 epidemic, New Zealand’s market demand and supply for N95 respirator masks changed. Since that time, NZ consumers in the city became willing to pay an extra $40 (at any given price) to buy the N95 respirator mask to protect them from COVID-19. At the same time, because of the effects of the world- wide lock down and boarder control, international cargo transportation and mask production had been greatly influenced. Therefore, NZ importers have had to pay an extra $32 to the international suppliers to secure their orders regardless of quantities of masks ordered. According to the above description, derive the new demand and supply of the N95 respirator market, and derive the equilibrium quantity and price in New Zealand in May 2020. Show your calculations and explain. (Use one digit after the decimal point for this part).

 

  1. Draw a new graph that shows the new demand and supply graph of the market for N95 respirator market in the city in May 2020, and the original demand and supply in December 2019, clearly indicating the new equilibrium quantity and price. (Remember to label the axes and draw your diagram to scale!)

 

  1. At this new market equilibrium, is demand price elastic? Explain.

 

  1. In September 2020, the NZ Government required people to use a face mask or face covering while using public transportation services.
  • If the government wished to make the N95 respirator masks more affordable to the public, is it a good idea to place a price ceiling of $35 per mask? Use your economics knowledge to clearly explain the outcomes of this policy.

 

  • Use a graph and refer to it in your answer to assist your discussion of the answer to the question.

 

 

 

  1. An alternative policy option to make face masks more affordable and used is for the government to provide a subsidy to suppliers of face masks. A subsidy is the opposite of a tax. For example, suppliers of face masks could have received a government subsidy (bonus) for each face mask by $1 per piece supplied in May 2020.

 

  • Use your economics knowledge to clearly explain the outcomes of this policy. Explain briefly whether or not it is an advisable policy, if the government needed to make the N95 respirator masks more affordable to the public.

 

  • Use a graph and refer to it in your answer to assist your discussion of the answer to the question.

 

 

 

  1. Use the internet to find two examples of subsidies currently enacted by the governments of the countries you obtain information on. Also note the economic rationale for each subsidy policy being implemented. (Give the internet link to the site where you obtained your information).

 

 


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