Answer each question provided
1. Suppose an increase in consumers’ income causes a decrease in the demand for pork and an increase in the demand for fish. Which good is inferior and which is normal? How will the equilibrium price and quantity change for each good?
2. What is the law of supply? Give two examples of how you have observed the law of supply at work.
3. What is a price ceiling ? Explain how a price ceiling can cause a shortage.
4. Explain how a price floor can cause a surplus.
Adult population
Labor force
# Employed
Unemployed
Rate of unemployment
Labor force
Participation rate
4,000
3,000
2,000
1,000
1,000/3,000 = 33%
3,000/4,000 =
75%
Adult population
Labor force
# Employed
Unemployed
Rate of unemployment
Labor force
Participation rate
1,000
800
600
8,000
6,000
4,000
15,000
9,000
2,000
30,200
25,000
20,000
Year
CPI
Inflation Rate
2001
20
2002
25
(25 – 20)/20 x 100 = 5/20 x 100 = 25%
2003
28
2004
30
2005
31
Adult population
The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale. For example, a business will make more video game systems if the price of those systems increases. The opposite is true if the price of video game systems decreases. The company might supply 1 million systems if the price is $200 each, but if the price increases to $300, they might supply 1.5 million systems.
re are several interpretations which explore the main reason for the end of the Cold War such as the Afghanistan War, Reagan’s Presidency, Gorbachev’s leadership, the economy and the independence of Eastern European countries. The main factor that led to the end of the Cold War was the debilitated relationship of the Soviet Union with Eastern European countries which meant that countries such as Poland and Hungary gained independence. As Levesqué argues, the independence of Eastern European countries led to the end of the breakdown of the Soviet Union, ultimately ending the Cold War because of the lack of focus on the East and the increased focus on the West. Moreover, the Soviet Union could not maintain their power and control over the Eastern European countries and could not provide financial aid when requested by Eastern European leaders. Thus, they saw Soviet control and support as inadequate. Although Oberdorfer sees Gorbachev’s leadership as the most important reason for the end of the Cold War, it is not true because the gaining of independence was the most detrimental factor which completely dissolved the Soviet Union, hence why the gaining of independence of Eastern European countries was the most impactful factor that led to the end of the Cold War. Levesqué: Levesqué believes the main reason for the end of the Cold War was the lack of control Gorbachev had over the Eastern European countries. Ultimately, this led to the end of the Cold War because the countries broke away from the Soviet control, which further led to the rapid downfall of the Soviets. Levesqué argues Gorbachev tried to have “the best of both worlds” by having “change and relative stability” in the Eastern European countries. Gorbachev was too focused on the West, disregarding the Eastern European countries which led to their independence because “first priority was given to the East-West rapprochement”. Therefore, the Eastern European countries were a significant reason for the end of the Cold War because the Soviet Union lost control over them as their power was minimised. Additionally, Levesqué depicts how historians in the past thought that Soviet Union leaders had “very poor information on the situation in Eastern Europe”. His argument is based on newly released documents, such as the report from the Bogomolov Institute, which clearly reveal problems at the time – they were just not acted upon. Eastern countries e.g Bratislava were looking to become independent because they disliked the Russian control, but this desire for independence was negative since it meant that the Soviet Union had less control over reforming them. Gorbachev wanted the leaders themselves to implement the changes, supporting the idea of freedom and democracy, but this ultimately led to the Cold War’s end as many were hesitant and refused to implement changes. “Gorbachev was convinced that reform could work in Eastern Europe, but he believed that the initiative had to come from the top leadership of these countries”, supports Oberdorfer’s central argument of his leadership being the main reason of the Co