Macroeconomics - Phase 1

Scenario One

Price Level 1

Due to over Supply of coffee in the market the supply curve shifted outward causing a decrease in price and increase in quantity. Demand of the coffee remained same.

Price Level 2

Price reduced further mainly due to persistent oversupply of the coffee in the market. the gourmet Coffee houses starting emerging as a result catering the demand of the higher segment and niche market.

Price Level 3

The demand for premium coffee increased as a result the demand curve shifted outward mainly due to the change in preferences of the consumers.

Price Level 4

Due to shortages in supply as the coffee supply has been affected by the weather conditions. As result supply curve shifted inward causing an increase in Prices and decrease in the quantity.

Scenario 2

Microeconomic Definitions of Demand and Supply

Supply refers to the output which producers are willing to produce at all levels of prices offered in the economy. Demand refers to the ability to purchase the goods at various prices across the demand curve for a particular product or service. Microeconomics demand and Supply deals with the single product or service (Boyes & Melvin, 2010).

Macroeconomic Differences of Aggregate Demand and Supply

Aggregate Demand is the total Demand exists in the economy for goods and services. Aggregate demand is constituted by different sectors across the economy. There are 4 major components of aggregate Demand which includes Household and Business Consumption, Investments in the economy, spending by the government and Net of Exports. Together they make up the GDP of the economy. Aggregate Supply refers to total Supply suppliers are willing to make in order to satisfy the existing demand of goods and services (Cernauskas et al, 2011).

Determinants of Demand and Supply

The determinants of demand and supply includes the changes in the prices of alternate goods and services as the consumers will shift to or move away from alternates products if their price increases. If the incomes of the household will increase or decrease their desire for particular product will also increase or decrease. The price of complementary goods also known as related goods also have an impact on the preferences of the consumers. The tastes and preferences of the consumers also change the demand of the consumers. The determinants of supply include cost of production of goods and services the higher the costs of goods the supply will decrease and vice versa. The adoption of new technology by the businesses also lead to increase in supply as new technology increases the productivity of the suppliers as a result increases. Prices of related goods have an impact on the supply as well because suppliers will start supplying or stop supplying a particular product mainly due to changes in the position of the alternate goods. Governmental policies also have an impact on the supply of the products and services which include imposition of taxes, environmental and production policies (Cernauskas et al, 2011).

Determinants of Aggregate Demand and Aggregate Supply

The determinants of Aggregate Demand are monetary policy ...