The paper "Economic Variable Determinants Changes" is a great example of an assignment on macro and microeconomics. PART A The given scenario would present a new rush and demand for tea after a short temporary higher demand for the coffee. In real-life situations, there would be an immediate-short increase in the quantity of coffee demanded as precautionary measures to guard against the planned price increase. But more importantly, coffee which has perfectly cross-price elasticity of demand with tea would witness an eventual decrease in the quantity demanded. There would be a new rightward shift to a new demand curve for the tea product which is a very close substitute for coffee in satisfying the same beverage needs.
This is on the assumption that there is a prevailing competitive price of tea presently and in the event of the planned increase. I say the present price of coffee and tea is $x and $y respectively where x is greater than or equal to y, then given the speculated price increase $(x+2), there would be a shift to a new demand from coffee to tea by consumers which affects the supply of both goods in the short and long runs. Part B The figure describes a complete change in the supply of one commodity to a new one which has close similarities.
It highlights a trend change in the supply matrix of two goods with similar utility values probably due to price determinants. This usually occurs in a perfectly competitive market A clear example is the international commodity market selling commodities like cement, small crops etcetera. Price differentiation between commodities Change in taste by consumers Favorable opportunity costs to the new commodity supplied New and cheap techniques of production including cheaply available resources. Government policies on former commodities including firm shut down. Factors that cause movement along the supply curve are thus: Cost of Production: This is the aggregate total expenditure on the production of goods and services.
The total cost TC of producing goods determines the quantity of output available for sale. Pricing conditions: the market-determined price assuming a perfect market condition, affects the supply of goods and services. Where the price is less than the marginal cost of production, Profit is not made and the firm might decide to scale down production to induce price increase. Demand matrix: A higher demand might push an increase in the production and supply of commodities while a decreased demand on the same item might lead to the reverse.
Tom G. Palmer, Twenty myths about markets: Delivered at Conference on
The Institutional Framework for Freedom in Africa
2007 Regional Meeting. Mont Pelerin Society Nairobi, Kenya 26. February. 2007