ECO 2013 Lecture Notes - Lecture 3: Economic Equilibrium, International Trade, Gross Domestic Product

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24 Aug 2016

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Prices of inputs: a good or service that goes into producing the final product. Technological change: the ability of a firm to produce a given level of output with a given quantity of inputs. Prices of substitutes in production: alternative products the firm could sell. Number of firms in the market: new firms entering the market will shift supply to the right, firms leaving the market will shift the supply curve to the left. Expected future prices: if firms think the prices of their product will increase they will lower the supply now and increase in the future. Income: the income of the consumers will affect their ability to spend money on products. Prices of related goods: the prices of other goods can decide whether consumers by one product over another. If someone likes porsche over honda, they are more likely to want to buy a porsche.

Related Questions

Entrance Slip Activity
1. Product prices give consumers and businesses a lot of information besides just the price. What kind of information?
Classroom Activities: Essential Questions
1. Describe the determinants of demand. Why are they important?
2. As the world population ages, will the demand for cholesterol drug increase, decrease, or remain the same? Assume there is a positive relationship between aging and cholesterol levels. Would this cause a change in demand or a change in quantity demanded?
3. Describe some of the reasons why supply changes. Improved technology typically results in lower prices for most products. Why do you think this is true? Describe the difference between a change in supply and a change in quantity supplied.
4. If a strong economic recovery boosts average income, what would happen to the equilibrium price and quantity for a normal good?
5. Suppose the market for tomatoes is in equilibrium, and events occur that simultaneously shift both the demand and supply curves to the right. Is it possible to determine how the equilibrium price and/or quantity would change?

In the early part of the last decade, there was an overproductionof coffee. The price dropped so low that producers' costs werehigher than the market price. The reason this happened was thatmarket prices became high before this, and the supply of coffeeincreased substantially. In the meantime, demand for coffee andeverything else remained the same. Price Level 1.

Coffee prices came down again, at first overshooting the formerequilibrium price, throwing the coffee market into confusion. Inthe meantime, gourmet coffee houses began appearing, which begancharging a premium for coffee in the period of falling prices.Price Level 2.

Gourmet coffee houses tend to open in high-rent areas and cater tohigher income consumers. Because of the change they created fortaste and preferences and the higher income market, the gourmetcoffee houses had a win-win in a period of falling wholesale pricesand increasing retail prices. Price Level 3.

But in the middle of the decade, the party was over, and wholesaleprices started increasing because of some shortages caused byweather and the rising overall market prices again. Where is thenew equilibrium price? Price Level 4.

Explain the changes in the supply and demand curves based on theabove information. Draw a graph showing how the changes affect theprice levels, supply and demand.

Scenario Two

You have been asked to discuss the differences between themicroeconomic definitions of supply and demand and themacroeconomic differences of aggregate supply and demand. Discusswhat determines supply and demand and aggregate supply andaggregate demand. Explain what causes movements along the curve andshifts in the curve for supply and demand and aggregate supply andaggregate demand (make sure that you include price as a variable).Include whether this is an example of the microeconomic definitionof supply and demand or the macroeconomic definition of aggregatesupply and demand. Most importantly, did this cause a shift in thecurves or a movement along the curves? What happened to equilibriumprice, supply, demand, aggregate supply or aggregate demand?Describe your graphs.

After Hurricane Katrina, what happened to the price of fish?
After the development of the microchip, what happened to the priceof computers?
After the government raised tariffs on imported cheese, whathappened to the price of domestic cheese?
Polyester suits have become trendy again. What happens to theirprice?
Internet auction sites are becoming more popular, and people areusing them more and more.
An new health report came out that said red wine lowerscholesterol.
The government raises taxes.
Inflation increases.
Immigration laws are relaxed.
The government increases spending.
Scenario Three

The PPF curve shows the economic choices a country can make aboutproduction given scarce resources, a given technology, and a givenquantity of inputs. Assume you are a developing country, producingfood and clothing at maximum capacity. What could happen whenforeign investors start investing in your country?

Discuss what type of foreign investments would be best for theeconomy

orchidbee801

Section I: Supply & Demand Analysis (Chapter 3) In each of the following 10 questions, show what happens to the Demand, Supply, equilibrium price and equilibrium quantity of copper. Show an increase by use of +, a decrease with a -, and no change with 0 (thatâs a zero, not an O or o). Although in the real world, both supply and demand are constantly changing, in the model we are using here, only one curve shifts per problem. So, if demand goes + or -, supply will be 0, and vice versa. In no case will equilibrium price or equilibrium quantity be 0. You may want to sketch out the supply and demand curve analysis to help in answering the questions. You will also be required to identify which determinant (of demand or supply) has changed, thus causing the shift. Rather than actually writing in the determinant, fill in the blank with the number that corresponds to the relevant determinant, based upon the following list. You may want to refer to the lecture notes entitled Determinants of Demand & Supply in the COURSE CONTENTS section. For questions 1 - 10, refer back to this list. Some you may want to use more than once, some you won't use at all. Copy and paste this list to an MS Word document and then print it out if you don't want to keep scrolling back and forth between this list and the question you're trying to answer. Determinants of Demand: 1. Change in buyer tastes 2. Change in number of buyers 3. Change in income 4. Change in the prices of related goods (on the demand side) 5. Change in consumer expectations Determinants of Supply: 6. Change in resource prices 7. Change in technology 8. Changes in taxes and subsidies 9. Change in prices of related goods (on the supply side) 10. Change in producer expectations 11. Change in the number of suppliers. For example, if a rightward shift in the supply curve for an item were caused by an increase in the number of producers of that item, you would indicate this be entering 11 into the relevant blank. If the demand curve shifted to the left because people didn't like that item anymore (like mimeograph machines), you'd enter 1 into the blank. Q#1 President Trump signs into law a bill that says the U.S. government will subsidize the construction of new homes, office buildings, bridges, and other infrastructure projects requiring copper. Demand; Supply: Equilibrium Price: Equilibrium Quantity Exchanged; Which determinant changed?: Q#2 Non-capitalist economies around the world begin a phase of rapid economic development, construction and growth, becoming increasingly wealthy, as they begin to adopt more capitalist institutions, as in China, Russia, and the former communist countries of East Europe. Demand; Supply: Equilibrium Price: Equilibrium Quantity Exchanged: Which determinant changed?

ECO 2013 Lecture Notes - Lecture 3: Economic Equilibrium, International Trade, Gross Domestic Product

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