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Imagine you are an analyst following the market for oranges.You notice that the price of oranges increases by a large amount.What will happen in the

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Imagine you are an analyst following the market for oranges.You notice that the price of oranges increases by a large amount.What will happen in the short term to the quantity of oranges demanded and supplied?

Carefully explain the economics behind your answer using models and concepts of Microeconomics.

Here is the pictures of knowledge points you should use in the analysis.About The Core Principles of Economics, Demand: Thinking Like a Buyer, Supply: Thinking Like a Seller, Equilibrium.

I hope you can analyze all the points.

Thank you so much.

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The Cost-Benefit Principle Users The Opportunity Cost Principle the Costs and benefits are the incentives that shape decisions. The true cost of something is the next best alternative You should evaluate the full set of costs and benefits of any you must give up to get it. Your decisions should reflect choice you face, and only pursue those whose benefits are at this opportunity cost, rather than just the out-of-pocket least as large as their costs. financial costs. * That is , incentives matter ! Good decisions focus on opportunity cost, rather The difference between benefits and costs is your economic than direct financial costs. surplus. If your costs and benefits cannot be directly compared, evaluate them in terms of your willingness to pay for them. Make sure that whenever you consider a decision, you ask, "Or what?" For example: "Should I get an MBA?" Or Don't let the framing of a choice-that is, how it's what? "Or stay in my current job?" The "or" part highlights described-affect your cost-benefit analysis. your opportunity cost. Sunk costs are not opportunity costs, and so they should be ignored. The Marginal Principle query The Interdependence Principle Wee Decisions about quantities are best made incrementally. Your best choice depends on your other choices, the choices others make, developments in other markets, and expectations Break "how many" decisions down into a series of smaller, about the future. When any of these factors change, your or marginal, decisions best choice might change. For example, instead of asking: "How many workers should I hire?" ask: "Should I hire one more person?" Answering this Consider four kinds of interdependence: requires comparing the "extra" or marginal benefits of that extra person with the "extra or marginal costs incurred. . Dependencies between your own choices 2. Dependencies between people/businesses in a market Following the Rational Rule will maximize your economic 3. Dependencies between markets surplus: If something is worth doing, keep doing it until your 4. Dependencies over time marginal benefits equal your marginal costs. Apply the core principles, in this order: The marginal The cost-benefit The oppoprtunity The interdependence principle principle cost principle principle Address "marginal" Assess the Which costs? Take account of questions, instead of marginal costs The opportunity broader effects of "how many" questions and benefits costs your decisions To forecast the decisions others make, put yourself in someone else's shoes. If you had their objectives and constraints, what decision would you make?An Individual Demand Curve The Rational Rule for Buyers Shows the quantity demanded at each price. Price - Price goes on the vertical axis Buy more of an item if its marginal benefit is greater than (or equal to) the price The first few items yield a high marginal benefit, and so you would buy even at a high price. Price = Marginal benefit Your demand curve is your marginal benefit curve. But at a higher quantity, each extra item yeilds a low marginal benefit, and so you Demand curve woud only buy at a low price. = Marginal benefits) Your demand curve is downward sloping because Quantity goes on horizontal axis ~ Quantity of diminishing marginal benefits Market Demand Curves 1. Survey a representative sample of the market, asking people the quantity they will buy at each price. 2. For each price, add up the total quantity demanded by the people surveyed. 3. Scale up the quantities demanded by the people surveyed, so that they represent the entire market. 4. Plot the total quantity demanded by the market, against price. When the Price Changes: When Other Factors Change: Movement Along the Demand Curve Shifts in the Demand Curve Price Price An increase in demand may reflect: 1. tincome (if normal) or income ( if inferior ) 2. Preferences shift to this good. 3. I Price of complements *A decrease in demand or t price of substitutes A price cut may reflect: 4. I Expected future price causes a rise in quantity 1. Income (if normal) 5. + Congestion or A change in the A price rise demanded. or t income (if inferior) I network effects price causes a decline in 2. Preferences shift 6. + Types of buyers quantity demanded away from this good changes or in 3. + Price of complements number of or + price of substitutes buyers 4. + Expected future price 5. t Congestion or network effects 6. Types of buyers changes or in number of buyers Yields a Quantity The acronym PEPTIC Quantity change in the can help you remember quantity demanded. these six shiftersAn Individual Supply Curve The Rational Rule for Sellers Shows the quantity supplied at each price Price z- Price goes on the vertical axis Supply curve Sell more of an item if its price is greater (= Marginal costs) than (or equal to) marginal cost Producing a larger quantity leads to a high marginal cost, Price = Marginal cost and so you would only supply this quantity at a high price. Producing a low quantity can be done with a low Your supply curve is your marginal cost curve. marginal cost, and so you would supply this quantity even at a low price. If the price is too low, shut down and don't produce anything Your supply curve is upward sloping because of Quantity goes on horizontal axis - > Quantity increasing marginal costs. Market Supply Curves Add up individual supply curves to get the market supply curve. Remember to account for not only current businesses in the market, but also to consider whether new businesses may enter the market when the price rises, or whether existing business may exit the market when the price falls. The same factors that shape individual supply shape market supply. When the Price Changes: When Other Factors Change: Movement Along the Supply Curve Shifts in the Supply Curve Price Price * A decrease in supply may reflect: 1. t Input prices 2 + Productivity 3. Other output prices: t substitutes-in-production or + complements-in-production A price rise causes 4. 1 Expected future price A change a rise in the 5. Types of sellers change in the quantity or | in number of sellers price supplied An increase in A price cut supply may reflect: causes a 1. I Input prices decline in 2 1 Productivity the quantity 3. Other output prices: supplied substitutes-in-production or + complements-in-production 4. Expected future price 5. Types of sellers change or t in number of sellers Yields a Quantity The acronym I, POET Quantity change in the can help you remember quantity supplied these five shifters.Getting to Equilibrium Surely Price 3 When prices are above equilibrium a surplus pushes prices down. I When prices are Equilibrium price 4' Equilibrium: The point at which there is no tendency for change below equilibrium, a shortage pushes prices up. Demand Quantity Equilibrium quantity Three-step recipe when market conditions change Step I: ls the supply or demand curve shifting lor both}? 07/ \"/4 ls it a shortage or a surplus? With a surplus: Prices are falling, discounting may occur, sellers may queue to find buyers, and sometimes extras get bundled for "free: anew With a shortage: Prices are rising, buyers may queue to meet sellers, and sometimes there are Secondary markets and/or \"bundling" of unneCeSSary costly extras. \"f , / / 'f/ " xZ/i/i/Zl/ Step 2:. ls that shift an increase (shifting the curve to the right) or a decrease (shifting the curve to the left)? Step 5: How will prices and quantities change in the new equilibrium? Shifts in Demand Price l Surely An increase in demand raises the price and quantity. A decrease in demand lowers the price and quantity. increased demand . -Demand Decreased demand Quantity lf the price and quantity move in the same direction then you know that the demand curve has shifted. (Beware: The supply curve may have also shifted.) Price : Shifts in Supply Decreased surely 5"?pr lncreased supply A decrease in supply raises the price and lowers the Fin increase in supply raises the quantity and lowers the price. quantity. Demand Quantity h' the price and quantity move in opposite directions then you know that the supply curve has shifted. (Beware: The demand curve may have also shifted.)

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