Understanding Demand and Trade Policy: Economics for Business

This article discusses the microeconomic concept of demand and its relationship with price and quantity demanded. It also explains the impact of change in demand and change in factors of demand. Additionally, it analyzes Trump's protectionist policies and trade theories such as comparative and absolute advantage.

Running head: ECONOMICS FOR BUSINESS
Economics for business
Name of the student
Name of the university
Author Note

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Table of Contents
Answer1:....................................................................................................................................2
Introduction:...............................................................................................................................2
Analysis:.....................................................................................................................................2
Conclusion:................................................................................................................................4
Answer 2:...................................................................................................................................4
Introduction:...............................................................................................................................4
Analysis:.....................................................................................................................................4
Conclusion:................................................................................................................................5
References:.................................................................................................................................6

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Answer1:
Introduction:
Demand is a microeconomic concept where price of a product plays significant role to
determine the quantity demanded for it. This microeconomic theory helps to understand
about the change in quantity demanded and change in demand.
Analysis:
Price and quantity demanded has negative relationship, where increase in price leads
the quantity demanded for the product to decrease further and vice versa. In this situation,
other demand influencing factors like income and preference of consumers, price of other
related commodities and price of related commodities are considered as constant. When price
moves along a demand curve considering these demand-influencing factors as constant,
change in quantity demand occur (Sharifi et al., 2018). In addition to this, supply curve
represents a positive relationship between price and quantity of a product and the curve
possesses positive slope. Due to change in price, the market can experience excess supply or
excess demand.
Figure 1: Change in quantity demand
Source: (created by author)

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D1
S
Q*
P*
Price
OutputO
D2
Excess demand
In above figure, demand and supply curve of a product equate with each other and this
in turn generates equilibrium price, which is, P* in above figure. If price increases from P* to
P1, the market can experience excess supply. On the contrary, the market can experience
excess demand when price decreases by P* P2 amount. Price has direct relationship with
quantity demanded.
On the other side, change in demand happens when any one of demand influencing
factors changes (Saviotti & Pyka, 2017). In this situation, the entire demand curve shifts its
position.
Figure 2: Change in demand
Source: (created by author)
In figure 2, the initial demand curve is D1, which shifts to the right that is from D1 to
D2 while price stays at P*. This curve shifts to the right when income of a consumer or
preference of consumer for a particular product increases.

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Conclusion:
Thus, above figure represent change in demand and change in quantity demanded for
indicating the impact of price change, and change in factors of demand.
Answer 2:
Introduction:
The president of U.S.A has proposed protectionist policies to improve economic
conditions of various companies within the country. Due to globalisation, the U.S.A has
produced and exported some goods in which it has comparative advantage (Bahar &
Rapoport, 2018). Moreover, the country has imported those goods in which it has higher
opportunity costs.
Analysis:
Comparative advantage helps a country to become specialised on producing some
particular products with the help of limited resources. However, the president has
experienced that this trade policy has increased the number of unemployed person within the
country due to lack of job opportunities. Hence, the president intends to follow absolute
advantage theory by producing all products in the country rather than importing it from others
(Levchenko & Zhang, 2016). According to the absolute advantage theory, a country produces
and produces those goods in which it experiences absolute advantage. By applying this
trading policy, the country is trying to produce products in domestic market through
generating job opportunities for domestic people. By doing so, the U.S.A can be self-
sufficient country, where skilled labour powers and higher level of investment can help this
country to produce more products. This further helps wage of the country to increase further.

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Conclusion:
Thus, the above discussion has focused on trade policy of Trump and has discussed it
with the help of trade theory. From this discussion, it can be said that the U.S.A can earn
huge amount of money if it applies absolute advantage theory.

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References:
Bahar, D., & Rapoport, H. (2018). Migration, knowledge diffusion and the comparative
advantage of nations. The Economic Journal, 128(612), F273-F305.
Levchenko, A. A., & Zhang, J. (2016). The evolution of comparative advantage:
Measurement and welfare implications. Journal of Monetary Economics, 78, 96-111.
Saviotti, P. P., & Pyka, A. (2017). Innovation, structural change and demand evolution: does
demand saturate?. Journal of Evolutionary Economics, 27(2), 337-358.
Sharifi, R., Fathi, S. H., Anvari-Moghaddam, A., Guerrero, J. M., & Vahidinasab, V. (2018).
An Economic Customer-Oriented Demand Response Model in Electricity Markets.
In The 19th IEEE International Conference on Industrial Technology (pp. 1-5). IEEE
Press.