Demand Curve and Supply Curve - 2333 Words

Literature Review Demand and supply have been generalized to explain macroeconomic variables in a market economy. The Aggregate Demand-Aggregate Supply model is the most direct application of supply and demand to macroeconomics. Compared to microeconomic uses of demand and supply, different theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply. The AD-AS or Aggregate Demand-Aggregate Supply model is a macroeconomic model that explains price level and output through the relationship of aggregate demand and aggregate supply. It is based on the theory of John Maynard Keynes presented in his work â€Å"The General Theory of Employment, Interest, and Money†. It is one of the primary simplified†¦show more content†¦The vertical axis is the price level. The horizontal axis is output or income. The short-run aggregate supply curve is downward sloping with slope equal to (1/a) while the long-run aggregate supply curve is vertical with no sl ope. The reason that the short-term aggregate supply curve is upward sloping is a bit more complex. Factors that determine the slope of AD-AS curve model The slope of AD curve reflects the extent to which the real balances change the equilibrium level of spending, taking both assets and goods markets into consideration. An increase in real balances will lead to a larger increase in equilibrium income and spending, the smaller the interest responsiveness of money demand and the higher the interest responsiveness of investment demand. An increase in real balances leads to a larger level of income and spending, the larger the value of multiplier and the smaller the income response of money demand.This implies that the AD curve is flatter, smaller is the interest responsiveness of the demand for money and larger is the interest responsiveness of investment demand. Also, the AD curve is flatter; the larger is the multiplier and the smaller the income responsiveness of the demand for money. We know that aggregate demand is comprised of C(Y - T) + I(r) + G + NX(e) = Y. Thus, a decrease in any one of these terms will leadShow MoreRelatedDeman d Curve, Supply Curve Equilibrium. The Demand Curve995 Words   |  4 PagesDemand Curve, Supply Curve Equilibrium The demand curve can be shown in a graph and it reflects the relationship between the price and amount of a commodity that people are able and willing to buy at a set price. The demand curve slopes downward because are more prone to buying a good as the price declines. For example, coffee drinkers may be willing to buy more cups of Starbucks coffee if a medium cup of regular coffee sells for $1.49 versus $2.10. Instead of buying one cup a day they may buyRead MoreDemand Curve And The Supply Curve1302 Words   |  6 Pagesshows that there is a gap between supply and demand. This is demonstrated by two curves which are the demand curve and the supply curve. Consumers of a product are encouraged to increase purchasing when the government decreases prices and as price rises to decrease purchasing, whereas, suppliers are encouraged to increase production when prices are high and decrease production when prices fall. The market model shows that at one point the demand curve and the supply curve intersect. This is called theRead MoreDemand Curve And The Supply Curve2004 Words   |  9 PagesIf we draw a Demand-Supply curve, the point where the demand curve and the supply curve meet is the market equilibrium which is the price at which quantity supplied equals quantity demanded. In this question, the equilibrium price is $20 and equilibrium quantity is 3, here at equilibrium price, the number of sellers and number of buyers are same which is 3, so there is no pressure for price to change. But if it is $24, the quantity demanded is less than the quantity supplied so there will be excessRead MoreThe Supply And Demand Curve951 Words   |  4 PagesA shift on the supply and demand curve will subsequently effect pricing, an example of this is the increase of coffee supply in 1998. Using data collected by the ICO, it is found that supply of coffee increased from 99,550 (in thousand 60 kg bags) in 1997/8 to 108,858 (in thousand 60 kg bags) in 1998/9. This can be explained due to an increase in suppliers with the addition of Yemen, Guyana and Loa, this will affect total production by increasing coffee producing countries, whilst simultaneouslyRead MoreSupply and Demand and Demand Curve2892 Words   |  12 Pagesrate of 3%? Answer: P = $40/(0.05 - 0.03) = $40/0.02 = $2,000 Topic 2: Supply and Demand 1) Suppose that the demand for oranges increase. Explain the long -run effects of the guiding function of price in this scenario. Answer: In the long run, the higher price of oranges will signal more firms to enter the orange market, as it will seem more profitable than some other markets. As firms enter, supply increases, causing the price to fall relative to the short-run price and quantityRead MoreSupply and Demand and Demand Curve1340 Words   |  6 Pages1. Suppose there are 100 consumers with identical individual demand curves. When the price of a movie ticket is $8, the quantity demanded for each person is 5. When the price is $4, the quantity demanded for each person is 9. Assuming the law of demand holds, which of the following choices is the most likely quantity demanded in the market when the price is $6? Explain and show calculations, While the question asks of the choices given what the quantity demanded will be, there are no choicesRead MoreSupply and Demand and Demand Curve1832 Words   |  8 Pagesis discrimination against them in other areas of the city. Rents paid are a very high percent of peoples’ incomes. (a) Would the demand for apartments in this area be relatively inelastic or relatively elastic? State why. (b) Would the supply of apartments in this area be relatively inelastic or relatively elastic? State why. 1 (c) Draw the demand and supply curves as you have described them, showing the initial equilibrium price and quantity. Label carefully. (d) Now assume the government createsRead MoreSupply and Demand and Aggregate Supply Curve.1966 Words   |  8 Pagesbusinesses expect future profits to fall. a. Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them. A deep recession in the world economy decreases aggregate demand. A sharp rise in oil prices decreases short-run aggregate supply. The expectation of lower future profits decreases investment and decreases aggregate demand. b. Explain the separate effects of each event on U.S. real GDP and the price level, starting fromRead MoreEconomics : The Supply And Demand Curve Essay1441 Words   |  6 Pageswould discuss Uber’s pricing in term of facing the fundamental concept of economics: the supply and demand curve. Uber is one of the pioneers of ride-sharing and its’ brand name has dominated headlines over the past year alongside mentions of the â€Å"sharing economy†. The Uber’s pricing that would be discussed is their surge price, because this volatile pricing will impact their demand within their limited supply of drivers, and important factor to survive from the competition between other transportationsRead MoreLaissez-faire: Supply and Demand and Demand Curve2886 Words   |  12 Pagesfor a large number of small private enterprises. Production and management strategies are made ​​by private capitalists according to changing in market supply and demand. Private capitalists are free to participate or exit the economic activity of any of industries. The form of price is spontaneous in market. It shows the change of supply and demand, it can distribute the scarce resources to producers, and also distributes goods and services to consumers. Consumer rights Consumers are the main part