MACROECONOMICS

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STUDENTNO

Scenario1

Starbucksis a major coffee retailer in the U.S. The company has grown overtimeby opening branches in new markets. Currently, Starbucks coffee ispresent in other regions like Australia Europe and the larger Asiaregion. In addition to new markets, the company has worked atincreasing its market presence in regions where it existed before, byopening more branches. The expansion of the Starbucks coffee retaileris a response to the rising demand of coffee. Considering there arerelatively few established and trusted coffee brands, the supply isstill relatively low, thus the high demand of the product.

Inthe early part of the last decade, there was an overproduction ofcoffee. What do you think happened to the price of coffee and why?

Ithink the over production of coffee in the last decade led to adecrease in the price of coffee. That was because when the supply ishigh the demand of a product decreases (Schansberg,2016). Following the principle of supply and demand, an over suppliedproduct losses it value or price. Therefore, in a bid to remain inbusiness, the coffee retailers had to lower their prices so thatconsumers would buy the coffee.

Duringthe last decade before the Great Recession of 2008 individualsincomes had increased as the U.S. economy expanded. The demand forgourmet coffee also changed with the increased income. Do you thinkthat people demanded more or less gourmet coffee? Why?

Withan expanded economy, comes increased disposable income. Thus thepeople had more money in their pockets that and could consume moreproducts. Since coffee is a household product, then with more moneythe people would consume more coffee. Therefore, in my view thepeople demanded more gourmet coffee because they could afford.Therefore, the coffee retailers were making profits in the market atthat particular period of time.

ScenarioTwoAccordingto Schansberg(2016) macroeconomics is a branch of economics that deals with howthe aggregate economy behaves. It examines factors such as inflation,unemployment and price levels. Microeconomics on the hand is thestudy of the economic behavior of individual units of the economy. Itfocuses of the choices that people and industries make in theirpursuit for the scarce resources. Basically, from the definition ofthe two terminologies, it is evident that macroeconomics deals withthe economy as a whole unit while microeconomics studies theindividual entities of the economy.

Discusshow the concepts of supply and demand relate to (1) microeconomicsand (2) macroeconomics

BothMicro and macroeconomics relate to the concept of supply and demand.With high demand of a product the supply is always inverse thus thesupply is low. When the supply is high the demand on the other handis low.

AfterHurricane Katrina, what happened to the price of fish?

Theprices of fish went up after the Hurricane. The reason being thesupply of the fish decreased since there was no fish. With the lowsupply the demand increased so did the price. The Hurricane Katrinais macroeconomic example of supply and demand. This experience causeda movement in the demand supply curve since the price of the fishaffected the quantity of fish. As a result of this the equilibriumwould be higher, hence a shift to the right.

Afterthe government raised tariffs on imported cheese, what happened tothe price of domestic cheese?

Theprice of the domestic cheese increased since the competition wasreduced. The increased tariffs ensured that the imported cheese wouldbe more expensive than the domestic cheese due to the cost importing.This is a macroeconomic example of supply and demand. Therefore, thisimpacted the demand of the local cheese. A product with a substitutethat is more expensive yet the utility is relatively the same theconsumers would most likely consume the cheaper option (Chen&amp Duan, 2016).In so doing the government would have achieved its target ofincreasing the consumption of domestic cheese. This caused a shift ofthe equilibrium price to the right.

Reference

Chen,X., &amp Duan, H. (2016) A meta-analysis of consumer irrationalpurchase behavior based on Howard-Sheth mode JournalOf Business &amp Retail Management Research,10(3),69-80.

Schansberg,D. E (2016) Teaching micro and macro in all principles coursesJournal Of Economics &amp Economic Education Research, 17(1),112-120.

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