Economics

Question 1

5 Shifters for Aggregate Demand

Answer 1

1.Price of Resources
2.Technology
3.Government Involvement
(taxes and subsidies etc.)
4.Number of producers
5.Expectations

Question 2

5 Shifters of Aggregate Supply

Answer 2

1.Price of Resources
2.Technology
3.Government Involvement (taxes and subsidies etc.)
4.Number of sellers/producers
5.Expectations

Question 3

Law of Demand

Answer 3

Inverse relationship between price and quantity demand

Question 4

What are the 3 reasons for law of demand

Answer 4

1.Substitution Effect
2.Income Effect
3.Law of Diminishing Marginal Utility

Question 5

Law of Supply

Answer 5

Direct relationship between price and quantity supplied

Question 6

How does a change in price affect the curve

Answer 6

A change in price never shifts the curve it only moves along the curve

E.G: When price of hamburgers decreases the the demand will go up but the supply will go down leading to a shortage. As Price level (P) decreases to (P1) then aggregate demand will increase and aggregate supply will decrease. (REMEBER PRICE NEVER SHIFTS THE CURVE)

Question 7

Double shift Rule

Answer 7

When 2 curves shift at the same time either the price or quantity will be indeterminant

Question 8

Note:

Answer 8

Increase in supply will cause the price to go down and the quantity to go up

An increase in demand causes the price to go up and the quantity to go up.

As a result of double shift Quantity definitely increases although Price is indeterminate

Question 9

Note:

Answer 9

Example of double shift:

Taking double mint gum as our product. If we are given the scenario that the price of peppermint increases.

If the price goes up for a key resource then the supply will decrease meaning supply will shift to the left and at the same time demand goes up shifting to the right causing the price to go up and as a result the quantity is indeterminate.