Question 3

(a) A movie theatre chain has researched the four market segments that it serves in order to better understand the relationship between the price of movie tickets and the demand for them. They have also studied their own costs to determine the quantity of tickets that they would supply at each price. The data is summarised in the table below.

Price of Movie Tickets

Demand: Couples No Children Demand:

Couples With Children

Demand: Singles

Demand: Others

Total Market Demand

Quantity Supplied

10 100 80 120 40 168

11 95 70 119 35 208

12 90 60 116 31 243

13 85 50 110 28 273

14 80 40 100 26 298

15 75 30 85 25 318

16 70 20 70 24 333

Required

(i) Determine the total quantity of tickets demanded at each price. Briefly explain how you arrived as these quantities.

[1+1=2 marks]

(ii) What is the price and quantity of tickets demanded by the total market at market equilibrium?

[2 marks]

(iii) At market equilibrium, what proportion of total demand will come from the "Singles" market segment?

[1 mark]

(iv) At market equilibrium, determine the price elasticity of demand for the total market associated with a one dollar increase in ticket price. Explain whether demand is elastic or inelastic at this price point, and what this implies about a change in total revenue resulting from the price change.

[3+1+1=5 marks]

(v) If COVID vaccinations lead to a decreased risk of catching COVID in a movie theatre, explain what you expect to happen to the demand curve, and to market equilibrium. Include an appropriate diagram and refer to it in your answer.

[2+1=3 marks]

(b) For each of the following scenarios identify whether you would expect:

An increase in the quantity of bread demanded,

An increase in bread demand,

A decease in the quantity of bread demanded, OR

A decrease in bread demand.

(i) Bread and butter are complements, and the price of butter increases.

(ii) The price of bread increases.

(iii) Bread is an inferior good, and incomes decrease.

(iv) Rolls and bread are substitutes, and the price of rolls falls.

[1+1+1+1=4 marks]

(c) The figure below illustrates the market for internet access in the remote areas of Western Australia.

Required

(i) Without any government intervention, what is the equilibrium price and quantity demanded in this market? [2 marks]

(ii) In response to political pressure the government sets a price ceiling of $130 per year for remote area internet access. Explain whether this results in a shortage or surplus, and if so, how much? [1 +1=2 marks]

(iii) Explain what would happen if the government increased the price ceiling to

$200 per year. [2 marks]

[Question 3 = 23 marks]