Business Finance
Determinants of Demand and Supply - Nominal GDP Questions Assignment

Question Description

Problem 1 (20%)

A. What are the determinants of demand? What happens to the demand curve when any of these determinants change? Distinguish between a change in demand and a movement along a fixed demand curve, noting the cause(s) of each.

B. What are the determinants of supply? What happens to the supply curve when any of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each

Problem 2

1. Suppose the supply of apples sharply increases because of perfect weather conditions throughout the growing season. Assuming no change in demand, explain the effect on the equilibrium price and quantity of apples. Explain why quantity demanded increases even though demand does not change

2. Assume the demand for lumber suddenly rises because of a rapid growth of demand for new housing. Assume no change in supply. Why does the equilibrium price of lumber rise? What would happen if the price did not rise under the demand and supply circumstances described?

Problem 3 (20%)

1. Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2014. How would this affect the size of gross private domestic investment and gross domestic product in 2014? Explain. (10%)

2. Contrast the ideas of nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? (10%)

Final Answer



Economic problems

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Problem one
Part A
The determinants of demand are mainly; the number of buyers, the income of buyers, the tastes
of the buyers, the expectations of buyers concerning the future price of the product being
discussed and changes in price of related products which entail complements and substitutes.
When there is a change in any of these determinants, there will be a shift in the demand curve.
If it is something that decrease the demand, the curve will shift to the left whereas, if it is
something leads to increase in demand, the curve will shift towards the right. A change in
demand curve occurs when the entire demand curve moves right or to the left due to change in
seasonal factors, fashion and variation in income. By contrast, a movement along a fixed

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