Essentials of Economics - Standalone book
10th Edition
ISBN: 9781259235702
Author: Bradley R Schiller, Karen Gebhardt
Publisher: McGraw-Hill Education
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Chapter 5, Problem 7QFD
To determine
To compute the role of expectations in companyT’s production and investment decisions.
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The figure shows the initial LRAS and SRAS curves.
- Answer if the expected price is higher than, lower than, or equal to 20?
- Additonally, answer how would SRAS curve shift here after: Leftward, Rightward, or No shift?
Suppose the cotton (a storable commodity) futures prices are currently
Expiry Month
Price c/lb
December 2021
83
December 2022
96
(a) Suppose an unexpected typhoon destroys cotton crops in India. This causes a downward revision in the expected global cotton production in 2022. Assuming all else equal, will demand for storage of cotton in 2021 (St) increase, decrease or stay the same? Draw a graph of the demand for storage to support your answer.
(b) Using the same scenario from (a), do you expect the cotton market to still in contango, inverted, or could it be either contango or inverted? Draw a graph of supply and demand for storage to support your answer.
Suppose the US economy enters a recession. During the recession, inflation falls and interest rates rise. What kind of change ("shock") to demand and or production is likely cause of the recession? Answer in one short paragraph.
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Essentials of Economics - Standalone book
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