Read the following situation and answer the following questions:
Market structure is the complete array of industry characteristics like number and size distribution of sellers and buyers, power balance between buyers and sellers, knowledge about the market, etc. that directly affect the price/output decisions made by the firm. A firm is, thus greatly affected by its market environment in pricing practices. The more competitive the market, the less discretion the firm has in determining its price. In the extreme case of a perfect market, the pricing is entirely outside the control of firms and consumers: they are price takers. The perfect competition model describes the most vigorously competitive sectors of the economy, in which widespread price competition drives firms' profits to levels just sufficient to maintain the required investment
It is assumed that the cell phone market is perfectly competitive in Nepal. Suppose that 20,000 traders are involved in selling cell phones in Nepal. Similarly, a market survey shows that a large number of households use cell phones. In this reference, answer the following questions:
Questions:
a. How are the equilibrium price and quantity of cell phones determined?
b. What will be the effect on the equilibrium price and quantity of cell phones when the government increases VAT on cell phones?
c. What will be the effect on the equilibrium price and quantity of cell phones when the income of remittance recipients households increases due to a high inflow of workers' remittance?
d. What will be the simultaneous effect on the equilibrium price and quantity of cell phones when the government increases VAT and the income of remittance recipients households increases due to a high inflow of remittance?
