Distinguish between a Change in Supply and a Change in Quantity Supplied. List and explain the factors that will shift a supply curve. Use demand and supply curves to determine the equilibrium price and quantity of a good. Use demand and supply curves to show the effect changes in supply and/or demand have on the price and quantity of a good. • Define Price
The higher the price of a good the more supply of the good will be placed into the market. Conversely, as the price falls, the less of a supply of the good will be placed into market. Determinants of Supply Supply is determined by the cost of the resources needed to produce the good, technologies used in production, any taxes or subsidies that the producer receives, the cost of goods that are comparable or not, the outlook of the producers, and how many sellers are in the market. As these determinants change there will be a corresponding change within the supply side of the
Furthermore, a cut in taxes depends on It depends on other components of AD. For example, if confidence is low, cutting taxes may not increase consumer spending because people prefer to save. Moreover, if the economy is close to full capacity an increase in AD will only cause inflation. Expansionary fiscal policy will only reduce unemployment if there is an output gap. Supply side policies include any action by the government intended to increase the amount that firms are willing to supply at any given price level in which they seek to shift the aggregate supply curve to the right.
This is because as price falls consumers can afford more goods as their real incomes increase and they feel richer. Real income is the bundle of goods and services that an individual can purchase. As we move from A1 to A2 utility increases from U1 to U2 because we move to a higher indifference curve so now the individual can now consume a better bundle of goods. This backs up the non satiation assumption of consumption which states more is better thus when we increase consumption total utility increase. The four axioms of consumption: Transitivity, Non-satiation, Marginal rate of substitution in consumption and Completeness must be met in order to be able to draw
Competency 309.1.2: Supply and Demand A. Elasticity of Demand as it relates to Elastic, Unit, and Inelastic Demand. Elasticity of demand is a way to measure how a price change of a unit will affect the overall desire for a consumer to purchase that unit. There are three ways that a price change can affect the demand of a product, it can increase demand, decrease demand, or not affect demand at all. (McConnell, Brue, & Flynn, 2012) Elastic Demand is when a price change directly effects a dramatic change in demand, most commonly in the opposite direction of the price change. Unit Demand is when a price change and consumer demand change together in the same direction.
On the other hand, the fall in consumption does heavily depend on where the fall is. If the fall in consumption is for domestic goods than this will have the reverse effect. The deficit will get worse as more money is being spent on imports in comparison to exports and so the the value of exports - imports will be much lower or a negative number. A fall in investment abroad will decrease the current account deficit because the difference between what you are spending money abroad on and what you are saving is not so far apart. Less investment abroad means that more money can be spent in the UK economy which greatly effects the current account.
Under first in, first out (FIFO), the first costs into inventory are the first costs assigned to costs of goods sold. Last in, last out (LIFO) costing assigns the last costs of inventory to the first costs of goods sold. A fast moving consumer goods company (FMCG) in times of rising prices would pay less income tax if it used the LIFO inventory accounting method. A FMCG in times of rising prices that uses LIFO would be selling its inventory with the highest prices. This would increase the costs of goods sold and lower the net income for the company for that accounting period.
When there is a larger demand for more expensive commodities, the demand for money increases and the cost to borrow follows. This is following the theory of money demand. (Sparknotes, 2013) It is true for a decrease in output. The fewer consumers are willing to buy, the lower the demand of money is creating lower interest rates. This can be seen in the housing market.
Elasticity is the degree of reaction that determines how a change in price of a particular good leads to a change in quantity demanded or/and quantity supplied for the same good or for related goods. Elasticity is also related to a change on people’s income and how this affects quantity demanded. It is said to be elastic when there is a strong reaction to the change and Inelastic when there is not a strong reaction to the change. 2. Why is it important for consumers to understand elasticity?
This will result in the demand curve to move from D to D1, signifying an increase in demand. However this increase will cause excess in demand as firms are still producing at Qe rather than Q1. Firms therefore have to eliminate this excess to allocate resources effectively. So the increase in price is a signal that shows that the demand from consumers is being met and this increase in price eliminates this excess. If there is an increase in the price of a good, then this gives a signal to producers that consumers wish to buy this good, since we can assume that producers are rational and wish to maximize their rifts then a higher price (P1) will give producers the incentive to