8. A core principle that I want students to take away from...

8. A core principle that I want students to take away from the class is the analysis of markets and the use of supply and demand to analyze prices and quantities in a market. a. Write out the determinants of demand and the determinants of supply, and explain how they shift the respective curves. b. Briefly state the law of demand and explain why we think demand curves should be downward sloping. c. Briefly state the law of supply and explain why we think supply curves should be upward sloping. d. Given the products below and the events that affect them, indicate what happens to demand, supply, equilibrium quantity, and equilibrium price in a competitive market. Identify the determinant of demand and supply that causes the shifts and illustrate them graphically. i. Calculators. More schools require students to buy and use calculators; improved productivity shortens the time it takes to make calculators. ii. Gasoline. Oil production declines due to a crisis in the Middle East; people take more car vacations and drive more. iii. New homes. The average incomes fall as the economy moves into recession; the productivity of home construction workers and builders increases. iv. Tobacco. The government cut its subsidy to tobacco farmers; more people quit smoking.

Transcript

00:01 So for this question, we're giving about 10 scenarios on where to find out what effect each of them will have on the aggregate demand or aggregate supply.

00:11 And what we draw a diagram to show that the expected effect on the equilibrium price level and the level of real output, assuming the price level is flexible both upward and downward.

00:24 So we're going to be taking a scenario one by one.

00:26 So the first scenario is a widespread fear by consumers of an impending economic depression.

00:35 So an expected economic depression will reduce the consumption and to shift the demand curve leftward.

00:42 So i'm going to be writing that.

00:48 An unexpected economic depression will reduce consumption because it's going to cost everything to like be expensive.

01:03 So you reduce your consumption and to shift the human curve leftward from d to d1 so the equilibrium price rises and the real outputs decreases so the equilibrium price rises and real outputs decreases so the graph should look like just a small graph the graph should look like this with d being here, then the supply being here, and d1 being here.

02:12 And this is the price and this is the real gdp.

02:17 So this is what the graph should look like.

02:21 Now moving on to the next question.

02:26 A new national tax on producers based on the value added between costs of the imputes and the revenue received from the output.

02:36 So a tax on producer will increase per unit costs, increase per unit cost and reduce supply.

03:06 So because it increases per unit cost and reduces supply, the supply curve will shift leftward from s to s1 and then equilibrium price decreases real output will also.

03:39 Decrease so the graph should look like this will the real gdp being here and the price being here and this is the supply this is the demand and this is s1 so this is what the graph should look like now moving on to the third scenario a reduction in the interest rates at each price level so a reduction in a interest rate would reduce the cost of investment because think about it if because most times when we invest the interest rates draws us away and we don't want to so if a reduction in the interest rate it was also reduced the cost of our investment and thereby increase in investment right and because of the increase in investment the demand curve will shift right toward from d to d1 and then the equilibrium price will rise and the real output rise to so equilibrium price will rise real outputs will also rise and the graph will look like this and this is the real gdp and this is the price this is d1 d2 should be like this d should be like this and then the supply should go like this so this is what the graph should look like now we're going to do the fourth one and this one is a major increase in spending for health care by the federal government so if there's an increase in spending for its health care this will increase government spending rights and also increase consumption and because increases the government spending and consumption it's the demand curve which shift rightward from d to d1 and then the equilibrium price would decrease and real outputs will also increase and the graph for that she looked like this with the real gdp being here and the price being here so the d -1 will be here, the d will be here, and supply here.

08:22 So this is what the graph should look like...

Question

Please give Ace some feedback