Macro economics

Topics: Supply and demand, Consumer theory, Goods Pages: 3 (721 words) Published: April 3, 2014


a) The price of natural gas, a resource used by manufacturers throughout the United States, doubles. Price increases because, the companies that sell the spiral notebooks need to mark up their price in order to keep afloat with the rising cost of natural gas. Demand is not affected. The determinant for demand on the TRIBE chart in this scenario would be related goods and services, since the price for a good that is used to produce spiral notebooks is increasing, thus leading to an increase in the price of spiral notebooks. Supply would decrease and shift to the left and quantity would decrease. Equilibrium price would increase and equilibrium quantity would decrease.

b) The government provides a subsidy for notebook manufacturers. In this instance the price of spiral notebooks would decrease since the government would be assisting the industry that makes spiral notebooks; financially to ensure the price of spiral notebooks remains low. Additionally, price would decrease since the business responsible for spiral notebook production and sale, would not feel the need to raise the price since they are receiving government funds. Quantity would increase since the more consumers would be attracted to the low prices, and the manufacturers would produce more goods, since they would be receiving economic assistance and would not have to worry so much about losing money from producing too many notebooks. Demand would be unaffected, since only quantity demanded would be changing and not the whole demand curve. Supply would increase or shift to the right. Equilibrium price would decrease and equilibrium quantity would increase. Last of all, the determinant for demand in this scenario would be Taxes, Subsidies, and government regulation in the ROTTEN chart.

c) Your income increases and spiral bound notebooks are an inferior good. The price of spiral notebooks decreases, and Quantity would decrease since fewer consumers that have...
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