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Show graphically the effect of an increase in demand on equilibrium price and output....

Question

Show graphically the effect of an increase in demand on equilibrium price and output.

Show graphically the effect of an increase in demand on equilibrium price and output.



Answers

Suppose the economy is in a long-run equilibrium.
a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand,
short-run aggregate supply, and long-run aggregate supply.
b. Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram
to show what happens to output and the price level in the short run. What happens to the unemployment rate?
c. Use the sticky-wage theory of aggregate supply to explain what will happen to output and the
price level in the long run (assuming no change in policy). What role does the expected price level
play in this adjustment? Be sure to illustrate your analysis in a graph.

Let's look at the impact of minimum wage laws on wages, workers supplied workers demanded and unemployment. So we're looking at the labor market right now in equilibrium, and this is before a minimum wage is enacted. But let's go ahead and suppose now that this minimum wage is implemented and that's going to fall above this equilibrium, right? The reason minimum wages are typically enacted is because people believe that that equilibrium wage that we're currently at is too low. So he said that minimum wage somewhere above it, so now we have a higher wage. We went from W. Note to W. One. So are wages have increased and now we need to take a look at our different quantities. So we're seeing all the way over here that are quantity supplied of labor Has increased from Q. Note to Key one. We're seeing that increase in labor supply. Let's actually call this instead of Q. One. Let's call that Q. SSR quantity supplied of labor but our quantity demanded of labor has fallen. So what we're seeing here is that our supply of labor is far greater than our quantity demanded of labor. So as a result of this we're likely to see unemployment increase because workers were gaining demand or supply and workers because people want those higher wages they're more willing to work. However employers can't afford to pay all of those workers this higher wage so they're going to hire fewer workers meaning that that demand for workers has dropped. So we're going to see this gap here between the quantity demanded and the quantity supplied of labor. This is going to be this surplus in labour supply which gives us higher rates of unemployment. So the surplus of labor supply in other terms is also known as the unemployment

So we can locate it. The E. Coli man point on the demand. A car graft by looking at the following. So the first we should know that's the equally been point on the D mind. Then the supply graph can be located located Weird that the mind and the Spyker of intersect with each other. So I took her screen shot from the task book to have me illustrate this point. As we can see here, the cold ember impress is weird. The demon encourages a dollar words a dumb were smoking curves intersect which supply her, which is upwards. Slocum Perp So that so both current So we can see here. The both curve is showing the same same graph and showing in the stair graham both demand and a spike curve on the same graph. The moniker the Interceptor pointed deed is its equilibrium point, where both demanded curve r ico. So this is a method for us to locate the equilibrium point

First, the first thing we should brush a fresh refresh ourselves with what does equal abran point me so you could leave them in the point at which quantity demanded is equal to quantity A supply it as we can see from this stable. The point e here is what we caught off is what we can't equilibrium, price or equally main point. And when the price is above this point, see here. So at this case is one point for daughter began. A It's a ukulele impress. So if the point press is 1.8 star per gallon, which is above the equal neighbor impress what's we're gonna? What we're hyping is the quantity supplies become more than quantity minded because because off the hair press form firms fund profitable to produce more. As a result, production increases more than the equally had been quantity rights. As we can see here when the press is bob, it's the quantity supplies of 700 where the Conte mandating is 500 years, 200 deficits between the quantity, supply and quantity demanded. Also a higher presses. People will demand the lies because is it's more expensive. Therefore, on his supply Alexei's quantity mandate. Keep this in mind with the surplus supplied is more with the surplus, which means quantities up supplies more than quantity mandates large stock get accumulated. That suppose puts pressure on sellers. So right because this is there some X X excess, supply it or surpass at here at this press. So there are some pressure for the firm's because they can sell their you know, their gas. Elise rest. So this is because if they would not be enough, supply the firm's run not gas enough cash to pay their workers because they cannot share their products. So producers cuts their presses to say are more and sell a sow their crews at lower press. So this about push the press to reach the yuko Labor Impress base, which is $1.4 a gallon. So same logic applies for the press when the press is below the equilibrium. At this 0.1 point two at this point is a quantum minded exceeds the quantity stockpile. This is because of lower press, you know, firms are not willing to produce more on the consumers. Albanians who buy more because of the price is very chief. So the firm's recognize us that they have opportunity to make higher profits by saving their products at hair press at the results presses rays towards to the equally ben level.

As we know the man curb shoes, your addition between prices on the quantity demand at those price. So this demand crow shows, for example, for this point issues. At this point, the price will be this mess press p quantity minds. Well, b Q. Which means those amount off goods well be we'll be. We'll be waiting to buy buy while we're waiting to balls by some some potential consumers as this press. Now, if consumers believe the price will be raising the future, for example, they believe the gas fried the grass and impressed will be everything. Why, month later wasn't gonna do you're gonna have to fear a tank right now, right? You don't want to pay a higher price, right? So this is because of bias, the most meat by the price that lowers toe possible press. No one wants to pay a higher price. So in price I low today and they were up by more stay. So they were accumulated. The stock, Therefore, that's showing the graph. The demand will shift to the right, which means that this price, the quantity money is no longer curious, is here is Q class This Easton's so the quantity mind for sure increase. This makes us right


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