Answer to Question #234587 in Microeconomics for Koffee

Question

1. Use a supply and demand diagram for a specified market to demonstrate the effects of the specific shoots given in the cases below on the equilibrium price and quantity. Clearly explain the key adjustments in supply and demand curves that result. Show whether there is a shift in the demand curve, the supply curve or neither

Answer 1

Economics as a subject deals with the allocation of scarce resources among humans with unlimited wants. For production, raw materials are used as inputs and processes through machinery using physical labour to convert into finished products. This is then taken to the market and buyers and sellers come to an exchange agreement at a particular price.

As economies got more and more complicated a government body was formed. Proper rules and regulations and law and order are imposed which makes economic agents invest in land, buy machinery and undergo production processes to make money. The government keeps economic stability in place along with intervening in the private market so that the economic pie gets distributed as fairly as possible.

Demand is the want for a good and supply is the ability of the producers to satisfy the consumption needs. All demand equals supply and according to classical economists, the market functions in such a way that supply always equals demand at a particular price point. Hence, given a supply and demand equation, the quantity traded in the market will always be equal. 

When there is a rise in temperature due to heat waves, people start consuming more in order to reduce their discomfort. They will consume more ice cream, i.e their demand for the goods will increase and given supply cannot be changed in a short time period, there will be a rise in price along with an increase in the quantity of ice cream consumed.

If the government imposes a tax on the producers, instead of paying it on their own, they will try to pass it onto the consumers. They will do this through a decrease in supply leading to an increase in price. The high price will let the producers pay their debt. 

 When cotton producers go on a strike there is a halt in production. This can be seen as a decrease in supply. The supply curve will shift to the left and increase the price and decrease the supply of cotton.