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MGEB02H3 Chapter : Week 2 chapter notes

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lavenderdonkey6
5 Dec 2010
School
UTSC
Department
Economics for Management Studies
Course
MGEB02H3
Professor
A.Mazaheri

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Document Summary

Chapter 2 the basics of supply and demand notes. N without government intervention, supply and demand will come into equilibrium to determine both the market price of a good. N supply curve relationship between the quantity of a good that producers are willing to sell and the price of the good. N vertical axis shows price of good, p, measured in dollars per unit, which is price that sellers receive for a given quantity supplied. N horizontal axis shows the total quantity supplied, q, measured in the number of units per period. N the supply curve is thus a relationship between the quantity supplied and the price. N the higher the price, the more that firms are able and willing to produce and sell. N quantity can depend on other variables, such as on production costs, including wages, interest charges, and costs of raw materials.

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Related Questions

1. Supply and demand show the relationships between two main variables, price and quantity. How are they depicted in demand, and in supply? What other factors impact the relationships between price and quantity in supply and demand? 

2.If a market is in equilibrium, is it necessarily true that all buyers and sellers are satisfied with the market price? Briefly explain.

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

Supply and demand. To be sure that everyone has a full understanding of how to solve supply and demand problems, our first discussion will be a supply and demand problem. Provide a step by step solution to the following problem: That the case of the machine tool industry in a closed economy. The market begins in equilibrium. The government imposes 10% VAT tax on all producers of machine tools. Provide a step-by-step explanation of the changes in the machine tool market as a result of the tax. Remember that the order of events is important.