Solved Case Analysis Questions-1

This page consists of some examples of case analysis-type questions and their solutions.

1- Case Analysis Type Questions and Solutions

Example - 1: Read the following situation and write a suitable answer to the questions given below.

Dhangadhi is a famous market zone for bread. Every day there is a bulk supply of bread in most of the tea stalls and grocery shops in Dhangadhi city. It is supplied at the equilibrium price of Rs. 80 per dozen and given the demand for bread, its daily revenue was Rs. 24,000/- in the last week. Recently, the price of fine flour, used to produce bread, has increased in the local market. Consequently, the supply of bread has adversely influenced and each dozen price of bread has gone up by Rs. 10, resulting in a fall in its revenue by Rs. 1,500 with the constant demand for bread.

Questions:

1-Find the equilibrium quantity of bread and show the equilibrium situation in the diagram.

2-By how much has the equilibrium quantity of bread increased or decreased?

3-What happened to the equilibrium price of bread with the increase in the price of fine flour? Show its impact on the supply of bread with the help of a diagram.

Solution:

1- Given the equilibrium price and daily revenue as;

P = 80

R = 24000

Q =?

The revenue is equal to the equilibrium price multiplied by the equilibrium quantity.

Hence, R = P × Q ........(i)

Putting the values of P and R in equation (i), we get;

      24000 = 80 × Q

or, 24000/80 = Q

or, Q = 300

Thus, the equilibrium price and quantity are equal to Rs.80 and 300 dozens. Now, let's plot the price and quantity in a diagram.

In the above diagram, DD and SS are the demand and supply curves of bread in Dhangadhi. These curves intersect each other at point E. So this point of intersection is the equilibrium point at which the equilibrium price and quantity of bread per dozen are Rs. 80 and 300 respectively.

2- In the above situation, it has been mentioned that with an increase in the price of fine flour, the price of bread has gone up by Rs. 10 and the daily revenue has fallen by Rs. 1500. 

Therefore,

New price = Initial price + Increased price

P  = 80 + 10

P = 90

New revenue = Initial revenue - fallen revenue

R = 24000 - 1500

R = 22500

The new revenue is equal to the new equilibrium price multiplied by the new equilibrium quantity.

Hence, R = P × Q ........(ii)

or, 22500 = 90 × Q

or, 22500/90 = Q

      Q = 250

Hence, new equilibrium P = 90 and Quantity 250. It shows that the quantity of bread has fallen by 50 dozens

3- With the increase in the price of fine flour, the production of bread gets adversely affected. The production cost of bread increases and its supply falls. This causes a shift in the supply curve of bread backward where the new supply curve intersects the demand curve at a higher point than the initial point of equilibrium. Hence, the initial equilibrium price of bread breaks, and a new equilibrium price and quantity are determined where the new equilibrium price goes up and quantity falls. Thus, the price of bread increases with an increase in the price of fine flour.

The above diagram shows that with a rise in the price of fine flour in the local market, the supply of bread fell down. As a result, the supply curve shifted backward from SS to S1S1 where the new equilibrium was established at point E1. At this new equilibrium point, the price has increased to 90 and quantity has fallen to 250 dozens.

Example - 2: Read the following situation and write a suitable answer to the questions given below.

There is a famous vegetable market at Bandevi-Temple near Dhangadhi Sub-metropolitan City Office. Various types of vegetables are being bought and sold in this market for the last few years. The market is the main source of vegetables for the consumers in Dhangadhi. Suppose that in 2016, per kg of tomatoes was Rs. 20 and the total quantity of tomatoes demanded and supplied daily was 500 kg. At present, the number of vegetable sellers and their consumers has significantly increased. The current demand & supply functions for tomatoes are given as;

Qd = 1010 - 15p and Qs = 434 + 9p

Due to the increasing trend in the vegetable market in Dhangadhi, the local government decided to provide subsidies to the vegetable producers last year. It distributed improved seeds, chemical fertilizer and also managed to provide training to the vegetable producers to increase the production of vegetables. Therefore, last year everything had gone well, with an increase in total supply by 20% and a fall in price by 25%. However, insufficient rainfall this year, caused a lack of water supply for irrigation and the production of vegetables has been adversely affected.

Based on the given information answer the following questions.

1-What was the situation of micro-statics in the given case?

2-When did the equilibrium become comparative, illustrate with the figure?

3-On the basis of given demand & supply functions, determine the equilibrium price and quantity of tomatoes.

4-What impact, do you think, fell on the supply of vegetables due to the lack of water supply?

Solution;

1- Micro-statics is an explanation of the static relationship between microeconomic variables at a point in time. In the given case, it has been mentioned that daily demand and supply, or the equilibrium quantity of tomatoes was equal to 500 kg. at Rs. 20 per kg. price in 2o16. It implies that there was a static relationship between the price of tomatoes and their equilibrium quantity in 2016. Therefore, this relationship between price and quantity constitutes micro-static. Diagrammatically, it is shown below.

In the above diagram E is the point of equilibrium of the price and quantity of tomatoes at a point in time. So, it is the point of micro-static at which the equilibrium relationship between those variables of 2016 has been mentioned.

2- When there is a change in the condition of demand and supply with a change in time, it brings a change even in the equilibrium position between two variables. This change in equilibrium situation is known as comparative micro-statics. In the above case, the equilibrium became comparative when there had happened a change in the equilibrium quantity of tomatoes as a result of an increase in its supply after the subsidies and other facilities were provided by the local government to the vegetable producers. With the increase in supply, the supply curve shifted forward, and a new point of equilibrium established with a fall in price and increase in equilibrium quantity as shown in the diagram below.

In the diagram, E was the equilibrium point of the number of tomatoes and their price for 2016. With the increase in supply, the new point of equilibrium is established at point E1. At this new point of equilibrium, a comparative analysis can be made based on the changes that occurred in the equilibrium price and quantity. So it is said that the equilibrium is comparative when the supply of tomatoes changes.

3- Given the demand and supply functions as;

Qd = 1010 - 15p

Qs = 434 + 9p

The equilibrium condition is expressed as;

    Qd = Qs ........ (i)

Substituting Qd and Qs in equation (i) by demand and supply functions;

        1010 - 15p = 434 + 9p

or,  1010 - 434 = 9p + 15p

or,  576 = 24p

or,  576/24 = p

or,  P = 24

Potting the value of P in demand function;

Qd = 1010 - 15 × 24

      = 1010 - 360

      = 650

Hence the equilibrium price is Rs. 24 and the quantity is 650 kg.

4- As mentioned in the case that there was a  lack of water supply for irrigation and the production of vegetables has been adversely affected. It implies that there had surely been a fall in the production of tomatoes. It also had happened a  fall in the supply of tomatoes resulting in a rise in equilibrium price and a fall in quantity. So the impact was that the vegetable price might have gone up than before. It has been shown diagrammatically as below.

Due to lack of water supply for irrigation, the production of vegetables including tomatoes had fallen and caused the supply curve to shift backward as shown in the above diagram. It established a new equilibrium E1 with a rise in price and a fall in the equilibrium quantity of tomatoes including other vegetables. Hence, the impact was that there was a fall in equilibrium quantity and a rise in the price of vegetables.

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