You are given the following information in relation to the market demand and supply of Ford cars:
Ford Cars: Market Demand and Supply
|
Price ($)
|
Quantity demanded/sold
|
Quantity supplied
|
Price elasticity of demand
|
Total Revenue
|
|
20,000
|
40,000
|
10,000
|
|
|
|
25,000
|
35,000
|
15,000
|
|
|
|
30,000
|
30,000
|
20,000
|
|
|
|
35,000
|
25,000
|
25,000
|
|
|
|
40,000
|
20,000
|
30,000
|
|
|
|
45,000
|
15,000
|
35,000
|
|
|
|
50,000
|
10,000
|
40,000
|
|
|
(i) Draw the market Demand and Supply curves (on the same graph) for Ford.
(ii) What is the market equilibrium price and quantity?
(iii) Explain what you will observe in the market if the Ford car price is set at a higher than equilibrium price.
(iv). suppose you are managing director of Ford Australia, and you are wondering whether or not to cut the price of Ford cars to increase your total revenue from sales. Explain how your knowledge of elasticity of demand can help you make this decision. Complete the last two columns of the above table and also draw a graph to explain your answer.
(v). suppose car industry is very competitive and Ford has been losing its competitiveness in the car market. Suppose that the government is providing substantial financial support to Ford manufacturers with the view that it will improve Ford's competitiveness. Evaluate the merits and demerits of this government policy measure.