WEEK 2 ASSIGMENT ECO 252-02 W

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Running head: ASSIGNMENT II THE LAW OF DEMAND WEEK II ASSIGMENT Lucas M. Maccarini Principles of Macroeconomics Instructor: Ryan Kearns August 30 2020 Coastal Carolina Community College ECO 252-02 W

THE LAW OF DEMAND 2 Answers Plot the demand for oil on the graph below. Graphic include china demand of oil (D1) 1. The data for the demand for oil indicates that at a price of $50, buyers would be willing to buy 250 million barrels of oil per day. All else equal, if the price of oil increased to $100, buyers would be willing to buy 150 million barrels of oil. Such a change represents a decrease in barrels demand . Other things constant, if the price of oil decreased to $25, buyers would be willing to buy 300 million barrels. Such a change would be called an increase in barrels demand . 2. Now, assume that due to rising incomes in China, Chinese consumers are buying more cars. This represents a change in the ceteris paribus (all else equal) conditions under which the original demand was determined. Assume that due to higher Chinese incomes, the demand for oil increases by 20 million barrels at every price. Fill in the demand table below to show the effect of rising Chinese incomes on the global demand for oil.

THE LAW OF DEMAND 3 3. On the demand curve diagram you drew for #1, draw a new demand curve showing the effect of rising Chinese incomes. Label the new demand curve D1 and answer the questions that follow. a. Comparing the new demand curve with the original demand curve, we can say that rising incomes in China have caused demand to shift to the right . b. Such a shift in demand indicates that at each of the possible prices shown, buyers are now willing to buy a higher quantity of oil than before. The cause of this change was an increase in the incomes of consumers. 6. Changes in consumers’ incomes and tastes and preferences are only two of the factors that can affect the demand for a good. Below, brainstorm and clearly explain other possible factors that could cause demand for oil to increase and decrease. a. A change in the price of substitute goods: i. Would cause demand for oil to increase: If the price of Substitute good increases so that it the Oil will become relatively cheaper.

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THE LAW OF DEMAND 4 ii. Would cause demand for oil to decrease: If on the contrary the price of Substitute good decreases so that it the Oil will become relatively expensive. b. A change in the price of a complementary good: i. Would cause the demand for oil to increase: If the price of Complementary good decreases so that both Oil and the Complementary good becomes relatively cheaper. ii. Would cause the demand for oil to decrease: The demand for oil decreases when the price of the complimentary products increases such as price of the car. c. A change in consumers expectations of future oil prices: i. Would cause the demand for oil to increase: If it the price of oil is expected to rise in the future than at present, more of oil may be bought at the current price hence increasing its demand. ii. Would cause the demand for oil to decrease: On the contrary if it is anticipated that the price of oil will fall in the future, less of the oil may be bought at the current price thus decreasing its demand (As recently experienced during the early days of the pandemic). d . A change in the size of the market (the number of consumers): i. Would cause the demand for oil to increase: An increase in the number of consumers (increase in size of the market) would undoubtedly cause the demand of oil to increase.

THE LAW OF DEMAND 5 ii. Would cause the demand for oil to decrease: In the other hand, a decrease in the number of consumers (decrease in the size of the market) would cause the demand of oil to decrease. 8. The graph below shows three possible levels of demand for beef. Assume that at present beef demand is represented by the curve labeled D1. Read the eight newspaper headlines in the table below the graph and use the table to indicate the impact each headline will have on the demand for beef.

THE LAW OF DEMAND 6 Notes: Y (yes), N (No), I (Increase), D (decrease) , L (left), R (right)

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THE LAW OF DEMAND 7 References O'Sullivan, A., Sheffrin, S. M., & Perez, S. J. (2020). 4. In Macroeconomics: Principles, applications, and tools . New York, NY: Pearson. Course Lectures part 1 and 2 provided by Professor Kearns

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