Economic Variables

Assessment Item 1 Part A.

Question 1:

A.

To explain this question, we need to understand that the price, quantity of product sold and the cost of

the product and so on are called economic variables which are related to one another. When the price falls, people buy more. To better describe the relationship among variables is a graph, where the people can analyze how a variable changes and how one variable affects another, having everything else constant. So, to analyze this question we draw the demand curve that represent the effect of a good's price on the quantity of the good people want to buy. (Mankiw 2008)

In this question, we can insist that the lower price in the parking permit will definitely increase the quantity of consumers willing to park in CQU University, because the decreasing price is a cause that is bringing an effect on variables. (Figure1). In economics, there are the economic variables, which economists can move up or down around the same time. The movement may occur by means of causation when one event brings about another event. In this case, we have negatively correlated model (Figure 1), when variable one increases from A to B and variable 2 decreases from D to C. This is a model with two variables that are negatively correlated, because variable 1 varies inversely with variable 2. (Rolfe & Medheker 2009)

Consequently, we may draw the correlation and use the data that will demonstrate the real picture, how the cause (decrease the price on the parking permit) will effect on variable1 and variable 2.(Figure1). Finally, we can see the clear picture, that if the price for parking permits falls from $120 to $20 in variable 2, the quantity of customers are willing to park in CQUniversity will increase from A to B in variable1. A change in price leads to a change in quantity demanded.

Figure 1

Variable2 ($)

$120 D

$20 C

A B Variable 1(Qty)

(b) To explain the disaster events in Australia that cause a decline in the production of wheat and raise the price of wheat in USA we need to know about international trade that is based on economic interaction in competitive market that let the countries to improve their economic outcomes. Also, the international trade allows people to interact freely in other economics in order of insufficient or necessary product of the market economy. International trade provides the opportunity to gain a profit from trade, especially for the countries where impossible to produce something or grow. The importance of market economy it is freely determined prices that are playing the crucial roles in a market economy. If any natural disaster event occurs like drought, there will be the signals about what should be produced and consumed. (Taylor 2000)

In this case, Australia suffers from drought that causes the decline in production of wheat. So, the information about the change in production of wheat in Australia is signaled to the producers (USA) of wheat. As Australia want to buy more wheat, the price for wheat will increase. That means that the higher price will signal that is more profitable for USA to produce more wheat.

This case provides incentives for USA farmers. A higher price for the wheat caused by drought in Australia that is increasing incentives for USA farmers to produces the wheat, because they gain more profit than before.

Therefore, it affects the distribution of income for USA farmers, they increase the production of wheat because of the high demand of wheat will bring more profit.

Question 2.

A.

(i) Due to be so fashionable to drink coffee in the coffee clubs, the cup of the coffee has risen. This example based on the supply and demand model, where the demand represents how much one or another product consumers willing to buy at different prices for some particular product. Also the supply represents the relationship between the price of the good and quantity that any firm wish to sell that is called quantity supplied and the relationship that represents the amount for each possible price. (Taylor 2000)

In this case, there is the relationship between price and quantity demanded. Such relationship represents is an example of the law of demand that insists the higher the price, the lower the quantity demanded in the markets and inversely the lower the price, the higher the quantity demanded. (Rolfe & Medheker 2009). The figure 2 indicates that in the case of the price rising from A to B will cause the decrease of the quantity demanded from Q1 to Q2 or quantity that consumers wish to by at that price.

Consequently, it's nothing will happened to the demand for coffee. The price of coffee has changed, but non of the other variables that has an affect on how much the consumers are willing to buy have changed, since the price has risen. When the price of a good rises the good become less desirable. The consumers will prefer to buy less cups of coffee and quantity demanded falls. It will be move upward along the demand curve.

Figure 2

$ Price

D

B

A

Q2 Q1 Quantity demand

(ii) The natural disaster is the one of the factor change then the supply curve shifts and also affects the amount that can be produced. Some other factors that can lead to the change in supply like technology, the number of firms in the market, taxes and other government regulation, the think is that such factors change will shift the supply curve to the right or to the left. However, such disasters like drought or floods have negative affect on quantity supplied that will decrease rather then increase the quantity supplied. (Taylor 200) The increase in the price of an inputs decrease the supply of the good, because less amount can be produced with same amount of inputs. In this case, the supply curve shifts to the left