Macro Economics :D

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deerslayer

deerslayer

Lifer
Jan 15, 2001
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Me and amdskip are doing a take home test and we're hoping for a little input. The teacher said there COULD be more than one answer for a couple. We have an idea of what the answer is, but we aren't sure.

9) Which of the following is/are correct with respect to a firm's supply of a given product?
a) there is an inverse relation between price received by the seller and amount supplied
b) the supply curve shows the amount of profit that will be earned for various output levels
c) the supply curve shows the amounts of a good that a supplier would be ready, willing, and able to make available for sale at various prices.

10) Last year a firm made and sold 1,000 units at $5 per unit. This year the firm will again make and sell 1,000 units but will increase the selling price to $8. What has most likely happened?
(You'll get the wrong answer if you don't draw a graph)
a) supply has increased
b) supply has decreased
c) demand has decreased
d) demand has increased
e) b & d

Thanks

Lynx and Skip
 
S

shazbot

Senior member
Jul 25, 2001
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9 is c. 10 is e.

10 is tricky, price wise, you have the supply/demand curves which form an x, and in order for the supply (horizontal axis) to stay on the 1000, both the supply would have to shift right, and the demand would have to move left, so that the point where the x intercepts moves up, but stays at the 1000 point.
 
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StattlichPassat

Banned
Jan 9, 2002
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9) is C, although I can't explain why too well- will come back to that.

10) is C as well! If they're making the same amount of product for both years, supply will not increase OR decrease- it stays the same. 1,000 units = 1,000 units, correct? But the PRICE went up. Joe Q. Customer comes in expecting to buy this product for 5 bucks, but it's now 8. Is that appealing? Nope. Demand has decreased.
 
C

Cyberian

Diamond Member
Jun 17, 2000
9,999
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Originally posted by: NightFlyerGTI

10) is C as well! If they're making the same amount of product for both years, supply will not increase OR decrease- it stays the same. 1,000 units = 1,000 units, correct? But the PRICE went up. Joe Q. Customer comes in expecting to buy this product for 5 bucks, but it's now 8. Is that appealing? Nope. Demand has decreased.
Click to expand...
Huh?

 
S

shazbot

Senior member
Jul 25, 2001
276
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Originally posted by: NightFlyerGTI
9) is C, although I can't explain why too well- will come back to that.

10) is C as well! If they're making the same amount of product for both years, supply will not increase OR decrease- it stays the same. 1,000 units = 1,000 units, correct? But the PRICE went up. Joe Q. Customer comes in expecting to buy this product for 5 bucks, but it's now 8. Is that appealing? Nope. Demand has decreased.
Click to expand...

very very wrong on 10. Supply is determined by the marketplace, if the company wants to achieve equilibrium. In this case, the company first produces 1000 & sells @ 5. Next year, in order for the 1000 to sell @ 8 dollars, the supply curve has to shift to the left. Remember, there are other possible suppliers in this market, this one company alone does not supply the only product. So, IF the supply curve does not move, but the demand curve shifts to the right to the 8 dollar point equilibrium, then the equilibrium point SHIFTS to the right, beyond the 1,000 supplied. Draw it for yourself. In order for the equilibrium point to shift back to 1,000, the supply curve has to shift left.
 
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shazbot

Senior member
Jul 25, 2001
276
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idiot-proof method of proving 10. take 2 pencils, or your two index fingers. Form an X with them. Where they intersect is the price @ 5. In order for the price to move UP to 8, but NOT move left or right, both pencils have to move. One moves right, one moves left. Hence supply decreases, demand increases.
 
R

Rivergater

Member
Jan 15, 2002
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Originally posted by: shazbot
9 is c. 10 is e.

10 is tricky, price wise, you have the supply/demand curves which form an x, and in order for the supply (horizontal axis) to stay on the 1000, both the supply would have to shift right, and the demand would have to move left, so that the point where the x intercepts moves up, but stays at the 1000 point.
Click to expand...




This is right. 9 is c and 10 is e. Except the explanation for the graphical depiction of 10 because I thought Y was traditionally price and X is quantity. That means supply curve shifts inward (left) and the demand curve shifts outward (right).


 
R

Rivergater

Member
Jan 15, 2002
171
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0
Originally posted by: NightFlyerGTI
9) is C, although I can't explain why too well- will come back to that.

10) is C as well! If they're making the same amount of product for both years, supply will not increase OR decrease- it stays the same. 1,000 units = 1,000 units, correct? But the PRICE went up. Joe Q. Customer comes in expecting to buy this product for 5 bucks, but it's now 8. Is that appealing? Nope. Demand has decreased.
Click to expand...



The number of units the firm supplies (ie when you're speaking in the context of "how many does the firm supply?") may stay the same at 1000 units but the firm's supply curve has shifted as well as the demand curve. Here is the reason why:

In microeconomics, we assume perfectly competitive markets so that means supply and demand will always reach an equilibrium (price will always be set by the market). If equilibrium for the next year is a higher price at the same output, you get that by an inward shift in the supply curve and an outward shift in the demand curve.

 
amdskip

amdskip

Lifer
Jan 6, 2001
22,530
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Thanks for the replies everyone so far:) Lynx and me are working on this stuff together!
 
Oakenfold

Oakenfold

Diamond Member
Feb 8, 2001
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GL on your test.

I'm taking intermediate macroecon right now, it's been 3 years since I took principles of Macro, NOW I know who to talk to when I need help!
 
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