Exercise 3-2) Market Equilibrium

Market Supply and Demand

Q. What effect does a surplus have on the price of a product? What about a shortage?

: Surplus will make sellers do competition so the price will go down. Buyers eager to buy due to the decreasing price so the quantity supplied go down. Shortage will cause the competition among buyers so the price will go up. Because of the price, sellers will try to supply more quantities but buyers purchase less.

Q. The following table shows the demand and supply of eggs (in hundreds of thousands per day).

A)   What are the equilibrium price and the equilibrium quantity?

: $3.50 and 48

B)   Complete the surplus/ shortage column. Using this column, explain why your answer to question A must be correct.

Price	Quantity Demanded	Quantity Supplied	Surplus/Shortage
$2.00	60	30	-30
2.50	56	36	-20
3.00	52	42	-10
3.50	48	48	0
4.00	44	54	10

: $3.5 is the only price with no surplus and no shortage.

C)   What would be the surplus/shortage at a price of $2.50? What would happen to the price and the quantity traded?

: It is Shortage 20 and price will go up to equilibrium price $3.5 and equilibrium quantity 48.

D)   What would be the surplus/shortage at a price of $4? What would happen to the price and the quantity traded?

It is Surplus 10 and the price will decrease to $48 and the quantity traded increase from 44 to 48.

Exercise 2-2) Game On

Games about the Economy and Marketplace

MacDonald Video Game

Played By Ji Hyee

Summary

I chose the MacDonald’s video game, in which the game is not for engaging together but individual play version.  

At the first, I started with 5 lands for growing soy and 3 pastures for growing cows. 3 pastures have 3 cows each pasture. It marked minus $11,650 and then I tried to sell the hamburger made of 100 patties initially.

 Patties were made continuously and I adjusted to keep 300-350 patties which were ready to sell. The number of petty and obtaining hamburger meant provision so I kept investigating the change of them in order to measure the manufacturing the number of patties. Marketing function including PR was activated continuously and the quality of the pastures and land also were monitored cautiously.

Finally, 3 cashers and 3 grill men were managed and I measured 3 to 5 pastures and 5 to 7 lands depending on the provision. I reached $ 65,230 revenue after recovering the initial loss. 

Reflection

In order to make profits, I need to check the store manager’s request that can show me the consumer’s dimensions. According to his requirements, I hired grill men and cashers. I also managed the customer service level through controlling the attitudes of crews as giving rewards or guiding to keep positive attitudes. The number of patties and obtaining hamburgers meant the provision so I measured to maintain 300-350 patties because if store stocked over 500 patties, the quality might get worse as time goes by.  

For adjusting the number of patties, I changed the number of pastures and land. If the number of cows is small, manufacturing patties wouldn’t be enough to cover the consumer’s dimension. Besides, I continuously checked the health status of cows so that I can manufacture the best quality of patties. In the meantime, marketing activities including PR should be conducted for increasing the sales and improving company image.

  

If there are people who want to succeed this game, it is the most important to observe the status of consumer’s dimension and product provision closely.

If we decide to the target goal about the safety stock level depending on the consumer, we adjusted other factors such as the number of lands, pastures, cows and fodder etc based on it.

Exercise 1-2) Possibility Curve

Production Possibilities

The graphs illustrate based on the assumption of limited resources. If resources are too abundant enough to use unlimitedly, we don’t need to choose considering opportunity costs. However, the scarcity always exists in our society due to the limited resources so when we decide to choose, it is so natural to consider opportunity costs. The graphs of production possibilities are also based on opportunity costs.

Last two semesters, I dropped a few course because my daughter finished her kindergarten earlier than I quit studying. In my case, scarcity was my limited time to take care of my young daughter and my choice was to drop courses which finish after 2:30PM. I considered the cost of the next best alternative, in which I hire a care giver. However, I decided to choose the time with my daughter above money because this moment cannot buy after passing.

When I decided to return to school, I gave up the wage that I can receive for working at company as supervisor. However, I expect that I can be rewarded for my hard work.

Exercise 1-1) Economic concepts

Step 1,2 - Review the circulation flow & Make study notes



• Firms

          Firms spend money and also receive money from households.

• Households

          Households consist of individuals who spend money and are the recipients of money.

• Markets for factors of production

          It is a resource market where firms buy for producing goods and services.

          Resources are    labor, capital, land and enterprise.

       a) Labor: Human physical and mental efforts for producing goods and services

       b) Capital: Tools, equipments, factories and buildings used in the production process

       c) Land: Natural resources used to produce goods and services

       d) Enterprise: Human resource in order to innovate and take risks.

• Markets for goods and services

          Product markets are where goods and services are sold. 

Step 3 - Consider a response to all the questions below.

      1.    What is the circular flow model diagram illustrating in general?

Circular flow illustrates how a market economy works. Individuals affect what is produced, marketed and consumed directly. Initially individuals decide to buy something then it influences producers which produce goods and services directly.

These produce are for being consumed by individuals. Besides, the amount of goods and services is related to the supply and demand principle. Circular flow model is showing how to exchange money during the processes.

2.    What are the income and outputs for households and firms?

Individuals in household spend money for buying goods and services that are provided by firms. Using the money that household individuals paid, firms buy something in resource market. One of the resources is human resources supplied by household. For the reward of using human resources, firms’ money flow to household as a type of monthly wage like that.

This wages that individuals receive don’t use up all. They use wages for purchasing products and services again, banking the money, financial investment and investing to real estate etc. For using these sources, they expect to reward interest, rent fee and so on. This investing money uses for capital of building factories, investing other companies as sources of capital.

3.  What is meant by product and factor markets?

a.    Who is part of these markets?

In product markets, household individuals buy products and services sold by firms. In the meanwhile, household individuals provide their efforts as human resources firms buy human resources. Moreover, resources supplied by household such as capital, enterprise, capital can be sold by firms in the factor markets.

4.    Where do you fit into this flow?

I am an individual in household so I consumed various products and services in product markets. Moreover, I am investing money through buying insurance and shares so also providing capitals to firms indirectly.

5.    What would happen to the flow if:

a.    firms reduced wages?

When firms reduce wages, desire of consumption will be declined and also reduce banking money that can reach to firms as a capital. Therefore, firms that reduced wages will be affected negatively.

b.    people stopped buying certain goods and services, as with boycotts?

If people don’t buy certain ones, raw materials for producing them also will not be consumed actively. Firms cannot obtain enough sources for producing then revenue also will be declined and financial statement will be getting worse and worse. If this situation keeps going for a long time, wages of employees who work for firms can decrease. Finally, result will be back to household individuals that did boycotts goods and services.

c.     forests became endangered and wood resources were limited?

In this situation, price of natural resources can increase tremendously then firms cannot obtain them for producing products abundantly. Sales revenue of firms will deteriorate so they may not have enough money to buy natural resources which the cost already went up too high. Because firms cannot retain natural sources, they cannot produce products for consumers and also the cost of producing products goes up expensively. Individuals who cannot afford to buy expensive products become reducing the consumption. Finally, stagnancy of business can occur and economy is caught in vicious circle.