Question
In: Economics
Importance of understanding of supply and demand of business. Plus some with short and long run...
Importance of understanding of supply and demand of business. Plus some with short and long run examples with effected the business.
Solutions
Expert Solution
Answer : As business is totally dependent on market demand and market supply condition, it is important to understand the market demand and supply condition for any businesses.
In the market if demand is higher than supply in short run situation then price level increase. As price rises producers earns more profit and to earn profit producers increase it's production level. As a result supply increases in long run situation which decrease the price level. Because demand can not be stable for a commodity in long time . Demand may decrease or increase. Especially demand change for substitution effect and income effect.
In short run if a business firm earn more profit then new firms entre into the market which lead to increase in market supply. As a result profit decrease and in long run time period it becomes zero. Because of zero profit many firms exit from the market which lead to decrease the market supply and this increase the price level and existing firms earn maximum profit.
Rahul Sunny answered 2 years agoRelated Solutions
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Assume the economy is initially in a recession.
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Illustrate a graph with aggregate demand, short-run aggregate
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Finally, adjust the short-run aggregate supply curve so that we are
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Consider an economy described by the following short-run aggregate demand, aggregate supply and long-run aggregate supply...
Consider an economy described by the following short-run
aggregate demand, aggregate supply and long-run aggregate supply
curve:
(short-run aggregate demand curve) P = 200 –
Y
(short-run aggregate supply curve) P = 40 +
Y
(long-run aggregate supply curve) Y *= 120
where P = Price Level (price index with base period’s
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Draw a diagram with an aggregate demand curve, a short-run
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intervene to close this gap, describe what will happen to this
economy over time. Illustrate with a diagram. b) Describe the
policies that the government could use to return the economy to
long-run macroeconomic equilibrium, when it is facing a
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Course relate to Macroeconomics ch. 10 Introduction to Economic
Fluctuations
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