Supply and Demand

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Supply and Demand

Topic – Supply and Demand

When plotting graphs, it is required to properly label all axes and graphs. No graph should have a �mystery axis�or a �mystery function�.

Use an essay format, and create supporting graphs, to answer the following questions:

Suppose we are examining the market for 240-foot industrial wind turbines. Consumers (buyers) of these wind turbines use them to generate electricity. For this analysis, we are interested in the demand for wind turbines and the supply of wind turbines � the supply and demand together create the wind turbine market.

Please use the model of supply and demand to analyze various market scenarios. Make the normal assumptionsabout the Laws of Supply and Demand, and also about the �determinants of demand� and the �determinants of supply.� Treat each scenario as a separate event.


Interpret basic scenarios: Within the wind turbine market, correctly identify the correct function (either the supplyof, or the demand for, wind turbines) and the appropriate direction of change (increase or decrease), for each situation below. Illustrate each answer with a simple graph. Then, in a short paragraph, explain why it is a supply-side or demand-side change, and why the predicted change is an increase or a decrease. Treat each scenario as a separate event.

A technological advance reduces the cost of production for industrial wind turbines.

The number of users [consumers] of industrial wind turbines increases, because more firms in private industry are buying wind turbines to generate power for themselves; in addition, a larger number of public utility companies are buying wind turbines as a �greener� source of electrical power.

Suppose natural gas is a form of energy as a consumer substitute for industrial wind turbines as a source of power (as compared to industrial wind turbines). What change is predicted in industrial wind turbines if the price of natural gas energy decreases?

Note: For example, in the USA, �fracking technology� has greatly reduced the cost of taking natural gas out of the ground, making natural gas a much cheaper form of energy.

Suppose a government subsidy that had been available to the producers of wind turbines is completely eliminated, and the cost of producing wind turbines rises, as the government subsidy is taken away. Predict the change in the wind turbine market caused by the removal of the subsidy.

Assume steel is a resource used in the production of industrial wind turbines. If global steel prices decreasedramatically, predict the impact. Does the supply or the demand for industrial wind turbines change? Why? What is the direction of change? Why?

Suppose the entrepreneurs who make and sell industrial wind turbines have the technological capacity to readily changeover their production operations to produce smaller residential wind turbines. If the price and profitabilityof producing residential wind turbines increase, what is the impact on industrial wind turbines?

Suppose the model of Supply and Demand is used to make predictions about changes in the equilibrium price and the equilibrium quantity of corn.


Interpret market scenarios: Within the corn market, predict the impact of changes in the determinants of demand or supply. In each scenario, identify the correct function (either corn supply or corn demand) and the appropriate direction of change (increase or decrease), for each situation below. Then use the analysis to predict the impacts of the change on the equilibrium corn price and equilibrium quantity of corn. Illustrate each answer with a simple graph. Remember, some complex analyses can produce the end-result of an �indeterminate change� in either the equilibrium price or quantity. Then, in a short paragraph, explain why the change in the market equilibriums occurred, and whether they �make sense� in comparison to outcomes in the real world market for corn. Treat each scenario as a separate event.

Suppose above-normal growing conditions (near-perfect weather, ideal soil moisture, no pest infestations, etc.) create a �bumper crop� of corn. Use supply-and-demand to predict the impact of the bumper crop on the equilibrium price and equilibrium quantity of corn.

When you perform this analysis, compare the market reaction as the corn-growing production conditions change from normal to above-normal growing conditions.

Are the predicted results of the model consistent with what typically happens in commodity markets when above-normal growing conditions impact agricultural production? Why is it important that the predicted results of a model be consistent with reality?

Suppose corn is a viewed as a �normal good� from the consumer household income perspective. If a worldwide recession reduces household consumer incomes on global scale, use supply-and-demand to predict the impact of decreased consumer income on the equilibrium price and equilibrium quantity of corn.

Suppose the corn market is impacted by multiple forces, and a complex supply and demand analysis is required.

In this scenario, suppose that an increased number of corn consumers enter the corn market because they are purchasing corn to meet a growing demand for corn-based ethanol.

Simultaneously, the US Department of Agriculture increases subsidies for corn production, in an effort to support/stabilize farm income.

Apply the supply-and-demand model to predict the impact of these two changes on the equilibrium price and equilibrium quantity of corn.

Suppose corn producers can readily change-over their operations to produce soybeans instead. Assume it is simple for a producer to grow corn or soybeans on a piece of land � the producer simply decides to change the crop in the next growing season.

Assume there is a notable increase in both the price and profitability of soybean production.

What will be the predicted impact on the corn market, because of the producer�s reaction to better profits growing soybeans?

Does the supply or the demand for corn change in this scenario? Why? What is the impact of this change on the equilibrium price and equilibrium quantity of corn? Is this predicted result consistent with real-world market outcomes? Explain.

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