Introduction to Economics Exercise 1

Assume that the manufacturers of this product lobby the government’s lawmakers, in terms of this product being essential for college students but they are considering halting production due to the lack of profits. The lawmaker’s agree and now set a price floor at $150. What would happen in this market?

#5. Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and the level of real output.

ANSWER KEY Chapter 1 Chapter 1–1 II.D. the accumulation of those economic products that are tangible, scarce, useful, and transferable 1. scarcity of resources, which results from society not III.A. the market having enough resources to produce all of the things people would like to have III.B. the markets in which productive resources are bought and sold 2. A need is a basic requirement for survival and III.C. in product markets IV.A. the amount of output produced by a given amount of inputs in a specific period of time

Microeconomics and macroeconomics concepts aide in the understanding on how they affect the shifts of supply and demand affect equilibrium price and quantity. Microeconomics focuses on supply and demand (Colander, 2010). A company would look at ways to increase production that could decrease their prices compared to competitors. This would adjust the equilibrium price of products by increasing the quantity that is available. This would allow the company the ability to pass price savings to consumers. Macroeconomics is used as the economy changes such as with inflation (Colander, 2010). Inflation would cause a company to have increase cost of materials in producing their product. This creates a change in quantity to be provided as supply has to be adjusted to meet the decrease of demand due to the economy affects on equilibrium price.

(10 points) Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. “In 1933 net private domestic investment was

Society has limited or scarce economic resources, meaning all natural, and manufactured resources that go into the production of goods and services. (McConnell, BRUE, & FLYNN, 2015, p. 11)

d) “The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible.” Evaluate this statement. Does your answer to part c, above, bear out this contention? Explain. I need assistance with this question.

A. It would likely suffer a significant decrease in its market share, because its competitors would be unlikely to deviate from the established equilibrium price.

In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will

At the price of $5.00, the quantity supplied equals the quantity demanded. At a price of $7.00, the quantity demanded is 120 greeting cards and the quantity supplied is 160 greeting cards. There is a surplus of 40 greeting cards a week and the price falls. As the falls, the quantity demanded increases, the quantity supplied decreases, and the surplus decreases. The price falls until the surplus disappears. The market equilibrium occurs at a price of $5.00 and 140 cards a week so the price falls to $5.00 a greeting card.

Scarcity shows us the basic economic problem, where humans have unlimited wants, yet there are only finite amount of resources. Therefore, there are not enough resources to fulfill these unlimited needs. One real world example of a scarce resource is coal. Coal is a resource used for fossil fuel and is a combustible rock. Coal is used for “electricity generation, steel production, cement manufacturing and as a liquid fuel”. As you can see there are many uses for coal, thus there will be companies needing as much coal as they can get, however there is only a finite amount for everyone, therefore it must be allocated correctly in order to satisfy those needing coal for self interest and their own objectives.

c. Suppose the price is currently $2. Will this price result in a shortage or a surplus? How much is the shortage or

B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A 19) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D 20) If price is initially above the equilibrium level, A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C 21) An equilibrium in a market is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D 3

The basic economic problem refers to a situation where human wants are unlimited while human resources are finite; it is the economic problem of scarcity of resources. At any one particular time, the resources of the earth are capable of producing a limited number of goods and services, however, human wants exceed limited production possibilities and this gives rise to what is known as the economic problem of scarcity.

Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?