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Discussion on Supply and Demand and Private and Public Goods

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I need help with these questions to contribute to my essay. Any assistance would be appreciated.

Explain the law of supply, and why the supply curve slopes upward? How is the market supply curve derived from the supply curves of individual producers?

- Identify what the major determinants of price elasticity of demand are? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic: (a) bottled water; (b) toothpaste; (c) Crest toothpaste; (d) ketchup; (e) diamond bracelets; and (f) Microsoft's Windows operating system.

- Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or by government: (a) French fries; (b) airport screening; (c) court systems; (d) mail delivery; and (e) medical care. State why you answered as you did in each case.

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Solution Preview

The law of supply states that as price increases, quantity sold by the business firms increases also. The supply curve slopes upward because of its direct proportionality relationship with price. Sellers will sell when the price of the product is high. On the other hand, when the price of the product is low, suppliers will restrict selling the product. Using a graph, the supply curve is derived by plotting in this manner: the y-axis (vertical axis) signifies the supply data and the x-axis (horizontal axis) signifies the price. The completed graph will show that the supply curve will be upward sloping.

Learning All (2012) identifies these major determinants of the price elasticity of demand:
1. Number of close substitutes within the market - The more (and closer) substitutes available in the market the more elastic demand will be in response to a change in price. In this case, the substitution effect will be quite strong.
2. Percentages of income spent on a good - It may be the case that the smaller the proportion of income spent taken up with purchasing the good or service the more inelastic demand will be.
3. Time period under consideration - Demand tends to be more elastic in the long run rather than in the short run. For example, after the two world oil price shocks of the 1970's - the "response" to higher oil prices was modest in the immediate period after price increases, but as time passed, people found ways to consume less petroleum and other oil products. This included measures to get better mileage from their cars; higher spending on insulation in homes and car pooling for commuters. The demand for oil became more elastic in the long-run.

Web Finance (2012) defines elastic demand as demand that increases or decreases as the price of an item goes down or up. The definition of inelastic demand in economics is that the quantity demanded by buyers doesn't change as much as the price does (Amadeo, 2012).

Elastic or inelastic: (a) bottled water; (b) toothpaste; (c) Crest toothpaste; (d) ketchup; (e) diamond ...

Solution Summary

The solution shows the characteristics and mechanics of supply and demand. It distinguishes also the difference between private and public goods.

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How Public and Private Decisions Affect Price Levels and Supply/Demand

Discuss the situation by writing the solutions, and then show the solutions

Scenario One

In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices became high before this, and the supply of coffee increased substantially. In the meantime, demand for coffee and everything else remained the same. Price Level 1.

Coffee prices came down again, at first overshooting the former equilibrium price, throwing the coffee market into confusion. In the meantime, gourmet coffee houses began appearing, which began charging a premium for coffee in the period of falling prices. Price Level 2.

Gourmet coffee houses tend to open in high-rent areas and cater to higher income consumers. Because of the change they created for taste and preferences and the higher income market, the gourmet coffee houses had a win-win in a period of falling wholesale prices and increasing retail prices. Price Level 3.

But in the middle of the decade, the party was over, and wholesale prices started increasing because of some shortages caused by weather and the rising overall market prices again. Where is the new equilibrium price? Price Level 4.

Explain the changes in the supply and demand curves based on the above information. Draw a graph showing how the changes affect the price levels, supply and demand.

Scenario Two

You have been asked to discuss the differences between the microeconomic definitions of supply and demand and the macroeconomic differences of aggregate supply and demand. Discuss what determines supply and demand and aggregate supply and aggregate demand. Explain what causes movements along the curve and shifts in the curve for supply and demand and aggregate supply and aggregate demand (make sure that you include price as a variable). Include whether this is an example of the microeconomic definition of supply and demand or the macroeconomic definition of aggregate supply and demand. Most importantly, did this cause a shift in the curves or a movement along the curves? What happened to equilibrium price, supply, demand, aggregate supply or aggregate demand? Describe your graphs.

- After Hurricane Katrina, what happened to the price of fish?
- After the development of the microchip, what happened to the price of computers?
- After the government raised tariffs on imported cheese, what happened to the price of domestic cheese?
- Polyester suits have become trendy again. What happens to their price?
- Internet auction sites are becoming more popular, and people are using them more and more.
- A new health report came out that said red wine lowers cholesterol.
- The government raises taxes.
- Inflation increases.
- Immigration laws are relaxed.
- The government increases spending.

Scenario Three

The PPF curve shows the economic choices a country can make about production given scarce resources, a given technology, and a given quantity of inputs. Assume you are a developing country, producing food and clothing at maximum capacity. What could happen when foreign investors start investing in your country?

Discuss what type of foreign investments would be best for the economy's PPF. What are the opportunity costs of these decisions?

Include what will happen to private and public choices as the economy grows. Support your discussion of these issues and consequences using at least 2 graphs.

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