MICRO AND MACRO ECONOMICS Case Study Example | Topics and Well Written Essays - 500 words

MICRO AND MACRO ECONOMICS - Case Study Example Since this will create an inequilibrium, market forces will push the prices downward until the equilibrium price is reached. Equilibrium price is the price where quantity demanded is equal to the quantity supplied. If prices of baseball bats are down, there will be excess demand of baseball bats in the market and quantity demanded of baseball bats will be higher than quantity supplied of baseball bats. This will again lead to inequilibrium in the market and hence the market forces will force the prices to adjust to reach equilibrium. In this case, prices will increase until the equilibrium price is reached. Changes in price of a product do not cause a shift in the demand or supply curve. Changes in price causes movement along the demand or supply curve (Investopedia). Since the supply curve slopes upwards, an increase in price will increase the supply of BMW cars whereas a decrease in price will decrease the supply of BMW cars. This is in accordance with the law of supply which states that as the price of a product increases, the quantity supplied of that product also increases and vice versa. I am assuming that the prices of shoes are relativitely elastic and has a price elasticity of demand of greater than 1. If price elasticity of demand is greater than 1, a reduction in price may lead to an increase in revenue and vice versa (Other things remaining constant) Andy, on the other hand, assumes that shoes have a low price elasticity of demand of less than 1. If the price elasticity of demand is less than 1, an increase in price results in an increase in revenue and vice versa (Other things remaining constant). Economic growth depends on the amount of capital invested, labor employed and productivity of workers (Berkeley). Higher savings rate does have a profound effect on an economy. Savings are needed to provide financing for investment in a