Flow of Goods and Services Flow of Cash
EXAMPLES OF TRANSACTIONS ON MARKET FOR GOODS AND SERVICES
Question 1(a) and 1(c)
EXAMPLES OF TRANSACTIONS ON MARKET FOR FACTOR OF PRODUCTION
Question 1(b) and 1(d)
Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans.
An example of a supply & demand graph
(a)People decide to have more children.
This indicates there is an increase in the number of buyers, therefore increase in its demand.
(b)A strike by steelworkers raises steel price
Steel prices increases due to workers’ strike, the cost of input increase, so the supply decreases
(c)Engineers develop new automated machinery for the production of minivans
Advances in technology allow more output production with the same amount of resources resulting in increase of supply.
(d)The price of sport utility vehicles rises
The rise in price of sport utility will increase the demand for minivans because the sport utility van serves as a substitute in the industry and therefore will positively affect the demand curve for minivans.
(e) A stock-market crash lower people’s wealth
The reduction in peoples ' wealth caused by a stock-market crash reduces their income, leading to a reduction in the demand for minivans.
If demand is inelastic how will an increase in price change the total revenue?
What do we know about Price Elasticity of Demand and how does it affect the price change of a production? Basically, the price elasticity of demand is a platform to measure