Economic assisgnment - Assignment Example

Geometrically, this effect is demonstrated by a shift of demand curve for bananas from Latin American market. Since the supply of agricultural product is inelastic, a gradual increase in the demand of bananas causes excess demand or shortage of bananas. It means that many buyers with will and the purchasing power are chancing few bananas2. The equilibrium price increases but more proportional than the increase in the quantity supplied. Increase in quantity demanded and increased propane users have led to a boost in the demand for propane in the USA market.

Since the supply is inelastic, this change in the USA market for propane causes a shift in the demand curve. It led to a shortage in the market, which encourage the supplier to skyrocket the price of propane to take the advantage in the market. Foreign goods become attractive to the US consumers, and they ought to import thereby decreasing the demand for propane in the US market. The equilibrium price decreases and equilibrium price will then decrease. In retrospect, propane and farm crops are complementary goods.

When the price of propane increases, the price of farm crops also increases. The price of propane and reduced quantity of propane are among the non-price factors that affect the price of farm crops in the market. It causes a shortage since less will be produced and shift of the supply curve upward. The equilibrium price rises and equilibrium price decreases. According to Arthurs Okun’s theory, a three-percentage increase in economic growth causes a one-percentage decrease in unemployment. Mathematically, the data above is consistent3.

On the other hand, Phillips explained that unemployment is inversely related to inflation. The figure above exemplifies this correlation since as the unemployment decreases from 10.0% in 2003 to 9.5% in 2006, inflation increases from 0.8% to 1.4% respectively. To this end, Okun’s theory