Economic Anaysis in Carribean

UNIT 2 ASSIGNMENT

PREPARED BY:

Question 1

a.

Quantity D Price Quantity S Price

9 0.5 5 0.5

8 1 8 1

6 2 14 2

4 3 20 3

2 4 26 4

b. The equilibrium price and quantity is $1.00 and 8 carrots respectively. See graph

c. If the household suffered a drop in income the demand curve would have an inward shift indicating that at every price the household would by fewer carrots. The equilibrium price and quantity are also affected resulting in shift to the left and a decrease in the equilibrium point for the price and quantity

d. If the farmer is able to be more efficient he will produce more carrots at any given price than he could before he acquired the piece of equipment. This would result in an outward shift in the supply curve and have the ability to supply more at the any given price.

e. If the Government were to set a price cap of 50 cents the market would no longer be in equilibrium since it is now below the market clearing price of $1. 00. This would result in excess demand with an inability in the farmer being able to supply the household demand as they are now willing to purchase more carrots. If Government decided to set the price cap at $4.00 this to would impact the equilibrium point and cause the household to be unable to purchase the amount as previous. This would result in excess demand. Based on the scenarios above the market is now in Disequilibrium.

Question 2

a. The economic cycle has four unique components, each reflecting differing levels of economic activity and the subsequent circumstances occurring during each stage. Firstly, there is the expansion phase where the economy is experiencing positive and increasing economic output. Employment tends to increase (unemployment falls) and there is upward pressure placed on prices (inflation raises) as output rises.

The second phase is the peak and is reached when the economy has produced the greatest amount of output. At this point employment is generally at...