Assignment #5

Using the typical 'Face book' lingo, write a definition for Microeconomics and then provide a Standard English translation for your 'Face book' definition.

¨      The study of economics behavior and decision making of small units such as, households, individuals, families and businesses.

Title:  Role of Money - M11

1. Using what you learned about the three functions of money, explain how 'play money' differs from 'real' money?

¨       They differ because real money has a unit of account and medium of exchange.
2.  Money has no actual value other than the value we attach to it. The barter system would still be practiced today if the participants did not agree to set a value on a piece of printed paper that represented the value of the goods and services they had to offer.  What would you accept in place of money, if someone wanted to 'buy' you’re most prized material possession? 

¨       I would accept a lifetime supply of food, protection, housing, and more for my family now and when I get older and past away.

Circular Flow Model - M11

1.  What does a circular flow model tell us?

¨       Tell us how the flow of money goes.
2.  What is the role of households in the three sector circular flow model?

¨       To pay taxes, provide labor and buy goods and services from businesses.
3.  What is the role of businesses in the three sector circular flow model?

¨       To pay taxes, supply goods, give income.

4.  What is the role of government in the three sector circular flow model?

¨       To give income to the households and payments to the businesses in exchange for goods.
5.  What role do households have in the factors or resource market (inputs)?

¨       They pay taxes to the government and payments to businesses.

Title:  Law of Demand and Law of Supply - M12

1.  For each event described below, explain what happens to either the demand or supply curve. Increase/decrease?  Shifts left or right?)

(a)  What happens to the demand for chicken if concerns about mad cow disease lead to widespread euthanizing of cows on U.S. cattle farms?

¨      The demand curve will shift left.

(b) What happens to the supply of orange juice if Florida is hit with very severe weather?

¨      The supply curve will shift left.
(c) In the market for coffee, severe global weather systems destroy 30% of the coffee bean crop.

¨      The curve will shift leftward.

(d) In the market for cereal, if the price of cardboard material used to package cereal increases.

¨      The curve will shift to the left.


2. For each part below, EXPLAIN what happens to equilibrium quantity and price (increase or decrease?).

a)  In the market for doughnuts, if they were found to be a major contributor to high cholesterol in adults.

¨       The equilibrium and price will decrease causing the curve to shift left.
b)  In the market for doughnuts, if widespread unemployment continues.

¨       The equilibrium will shift to the left.c) In the market for doughnuts, if Krispy Kreme introduces a new whole wheat 'low-calorie' doughnut.

¨       The equilibrium and price will increase.
3.  What are two factors that can change the quantity demanded?  Provide an example for each.

¨       Income changes- people are getting less money.

¨       Available Substitutes- another product can replace it.

4.  What are two factors that can change the quantity supplied?  Provide an example for each.

¨       Buyer Income- buyers can start to get less money.

Advance in technology- buy things to help produce goods at a greater pace.