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Test 1 Essay component (20 points)
EC 212 Principles of Macroeconomics/Microeconomics
- Identify a media account (newspaper article, video) discussing a change in the price of a good or a service. Use the supply and demand model to explain and illustrate graphically why the change occurred. The market that you choose should be a competitive market where there are more than a handful of suppliers. Also, the article that you choose should discuss market level prices, not the price charged by one individual supplier. For example it’s ok to talk about a change in the price of cell phones but do not try to analyze the individual pricing decision of Apple for the iPhone.
Your analysis should contain the following:
- A link to the article you are analyzing and the title of the article.
- The direction and the magnitude of the price change
- Identify the factor(s) that lead to the change
- Identify whether the factor(s) at work shifted the supply or the demand curve
- Identify the direction of the change in the equilibrium quantity
- Illustrate graphically (or describe in words how you would illustrate graphically) the changes that occurred in the market. IMPORTANT: If you draw the graph make sure you label correctly your graph (axes, supply and demand curves and the equilibrium price levels and quantities).
Submit your work online on Canvas. (log on to Blackboard course, go to ‘Assignments’, click on ‘Supply and Demand Analysis’ and upload your paper). I prefer that you submit your work electronically and draw the graph using the tools available in Microsoft Word or any other program. You can also take a picture of the graph you draw by hand and insert it in the document that includes your explanation.
- Watch the video available here: http://www.youtube.com/watch?v=R6ojYtKazgQ
Use economic analysis to answer the following question:
- Use the supply and demand model to explain the effects of price gouging.
- What happens in a state of emergency to the demand for generators?
- Without government intervention what would happen to the price and the equilibrium quantity?
- What occurs when the government does not allow the market price to go up?
- Who benefits who is hurt by price gouging legislation?
- Do you think the government’s action to deter price gouging (like in the case mentioned in the video) is beneficial?
Hint: Price gouging legislation is an example of a price control. In order to answer these questions use the material in Chapter 4 on the economics of price controls