Eco8069 | Economics | Change Assessment Answers

Answer:

Introduction

Economical factor is one of the major factors to be considered by the businesses in the current time. This applies in both trade approach of the countries and the relationship between price and quantity demanded. In this essay, the difference between the change in quantity demanded and the change in demand will be discussed with the help of demand and supply curve. In addition, the adverse impacts of the Trump’s protectionist policies will also be discussed in terms of comparative and absolute advantages.

Change in demand and shift in quantity demanded

Change in the demand refers to the movement along the demand curve. This happens when the demand for a certain good change with the change in its price. According to the law of demand, price and demand is having inverse relationship and they both flow in opposite directions. Thus, increase in price will lead to decrease in the demand and vice versa (Obizhaeva & Wang, 2013).

Figure: 1

Change in demand curve

According to the above graph, the movement is noticed along a single demand curve. When the price changes from P1 to P2, quantity changes from Q1 to Q2. This led to the movement across the demand curve. However, in this case, different determining factors other than the price such as customer preference, income and substitutes are considered constant (Vivekananthan et al., 2014). Therefore, these factors can also make change in the quantity demanded even without any change in the price.

Figure: 2

Change in quantity demanded

The above figure shows that even the price is constant at P, quantity demanded changes from Q1 to Q2. This led to shift in the demand curve.

Change in supply and shift in quantity supplied

According to the law of supply, quantity supplied and price goes in same direction. The below figure shows that with the increase in price from P0 to P1, quantity supplied increased from Q0 to Q1. This denotes that only the price factor is considered and this shows movement across a single supply curve.

Figure: 3

Movement across supply curve

However, similar to the demand curve, if the other factors such as production cost, technology and price of substitutes can be considered then the quantity supplied will get changed without the change in price and will led to shift in supply curve.

Figure: 4

Shift in supply curve

The above figure shows that if the other determining factors changes, then the quantity supplied will get changed from Q1 to Q2 even without any change in price.

Fallacy of Trump’s protectionist policies

In terms of comparative advantages, Trump’s proposed policies will be harmful for the domestic service industries of the United States. This is due to the reason that Indian and Chinese call centers are having comparative advantages over the US in terms of providing cheap service (Irwin, 2017). This, protectionist policies will lead to close this opportunity and service cost will get increased. On the other hand, Canada is having absolute advantages over US in terms of production of crude oil. Thus, imposing of tariff on them will affect the import of crude oil and this will have negative impact on the domestic economy of US (Ghemawat, 2017).

Conclusion

Thus, it can be concluded that there are different factors that lead to shift in demand and supply curve and movement across the demand and supply curve. In addition, it is also concluded that US economy will be affected in terms of comparative and absolute advantages due to Trump’s protectionist policies.

Reference

Ghemawat, P. (2017). Globalization in the age of Trump. Harvard Business Review, 95(4), 112-123.

Irwin, D. A. (2017). The False Promise of Protectionism: Why Trump's Trade Policy Could Backfire. Foreign Aff., 96, 45.

Obizhaeva, A. A., & Wang, J. (2013). Optimal trading strategy and supply/demand dynamics. Journal of Financial Markets, 16(1), 1-32.

Vivekananthan, C., Mishra, Y., Ledwich, G., & Li, F. (2014). Demand response for residential appliances via customer reward scheme. IEEE transactions on smart grid, 5(2), 809-820.