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Economics with Figures - Essay Example

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Economics Name Institution Economics Scenario 1 More than often, the demand curve of the commodity gives the maximum price in the market that consumers are not only willing, but also able to pay in exchange of a given amount of the good. On the other hand, the supply curve gives the lowest price that producers are willing and able to sell based on the cost of production…
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Economics Essay with Figures
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Economics with Figures

Download file to see previous pages... This is because there was an increase in supply of coffee which did not correspond with its demand as it remained constant. Therefore, the increase in supply made the prices decrease because the consumption that did not correspond with the increase supply leading to a decrease in coffee price. More so, the law of supply states that the higher the supply the lower the price whereas the lower the supply the higher the price while demand other factors remain constant, hence resulting to price level1at (P3) in the figure 1 below. In the figure below the demand and supply curve intersect at an equilibrium point (E), however, an increase in the supply of coffee leads to consumer surplus because coffee is in excess of demand leading to a fall in coffee price below the equilibrium price to (P2). Nonetheless, the introduction of a new brand known as gourmet coffee enjoys a higher price as it retails at high value to those individuals from high income households (Gans & Mankiw, 2011). ...
the other hand, climatic and weather changes also affect the supply of coffee because it hinders the availability of raw materials that make the final product. Therefore, harsh weather conditions reduce the supply of coffee in the market as compared to the demand level (Gans & Mankiw, 2011). This result, in producers’ shifts of the increased cost of the commodity that is high due to shortage to the final cost that the consumers pays on the purchase of coffee. While the demand level remains steady the supply curve shifts downwards as a result, of decreased supply leading to an increase in coffee price to P4 from the equilibrium price. D o D2 E1 Downward shift of supply P1 Upward shift of supply Price of CoffeeP4 D1 E4 E P0 E3 P3 S1 E2 Upward shift of demand P2 So Downward shift of demand S2 Q2 Q o Q1 Output of Coffee Figure 1 Scenario 2 While demand shows the relationship that exist between the price and quantity of a commodity that consumers are not only willing, but able to buy, the aggregate demand gives a measure of the total levels of spending in the national economy without taking into consideration price and quantity of specific commodities through measurement of consumption, government purchases, imports and exports(Gans & Mankiw, 2011). On the other hand, supply measures both the price of a good and the quantity of a commodity that producers in a given firm are willing and able to produce and sell while aggregate supply measures the total supply of goods and services in the national economy within an overall price level produced at a given time period. More significantly, a downward change in the supply of fish as a result of Hurricane Katrina occurrence, while demand remains leads to an increase in the price of fish. This is an example of microeconomic ...Download file to see next pagesRead More
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