WHAT IS MACROECONOMICS l ASSIGNMENT

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author Note

MACROECONOMICS
Table of Contents
Section 1:....................................................................................................................................2
Answer to Q1.a...........................................................................................................................2
Answer to Q1.b..........................................................................................................................2
Section 2:....................................................................................................................................3
Answer to Q2.a...........................................................................................................................3
Answer to Q2.b..........................................................................................................................3
Requirement i)............................................................................................................................3
Requirement ii)...........................................................................................................................4
Requirement iii).........................................................................................................................4
Section 3:....................................................................................................................................5
Answer to Q3.a...........................................................................................................................5
Requirement a)...........................................................................................................................5
Requirement b)...........................................................................................................................5
Requirement b)...........................................................................................................................5
Answer to Q3.b..........................................................................................................................6
Answer to Q3.c...........................................................................................................................6
References list:.........................................................................................................................10
References list:.........................................................................................................................11

MACROECONOMICS
Section 1:
Answer to Q1.a.
Decision making is the process of choosing any particular course of action from the
available alternatives. There are two important aspects of the decision making which involves
the environment where people has to decide and the intended objective for which decision is
to be taken. People makes decision based on few principles such as subject matter, structure
of organization, communication system, sufficient time and analyzing the alternatives.
Decisions should be made with adequate time and communicating the proper information
along with analyzing the merits and demerits of possible alternatives (Nakamura and
Steinsson 2018). While taking any decision, the impact of the decision should also be studied.
Answer to Q1.b.
Principles of interaction among people is the interaction of the firms and households
in the market for particular goods and services. Such interaction shapes the basic sides as it
mainly involves the social interaction. On other hand, principle of interaction among the
economy as a whole is summing up of all the decision makers activities. That is interaction of
economy is about the interaction of the markets guided by the preferences and belief.
Interaction of the economy as a whole emerge from the interactions between the demand and
supply that deals with the negotiation in the price (Fiedler and Costantini 2018).
Section 2:
Answer to Q2.a.
It is stated by the law od demand that an increase in quantity demanded would result
in fall in the commodity price and vice versa, while all the other things remains unchanged.

MACROECONOMICS
That is, in accordance with the law, there exist an inverse relationship between price and
quantity.
Quantity demanded
(units)
Price per unit
100 20
120 18
150 12
180 10
200 5
80 100 120 140 160 180 200 220
0
5
10
15
20
25
20
18
12
10
5
Quantity demanded
Price
The chart shows the negative relationship between quantity demanded and price of the
product as indicated by the downward slope.
Answer to Q2.b.
Requirement i)
Events shifting supply curve or demand curve or both is that except for the changes in
price, there would be changes in all the other factors impacting demand. Demand curve might
shift due to increase in demand resulting from increase in income of the consumers. Supply
curve on other hand would shift due to increase or decrease in the production.

D0 D1 S0
S1
P0
P1
Q0 Q1
E0
0
E1
MACROECONOMICS
Requirement ii)
An increase in demand will shift the demand curve in the upward direction and
determines the new equilibrium point and vice versa. Increase in supply due to increase in
production driven by the lower cost of production would shift the rightward side (Martins et
al. 2017).
Requirement iii)
The above graph depicts an increase in both demand and supply and the shift of
equilibrium points due to such change. Initially, equilibrium is determined at E0 due to the
intersection of Do and So, where quantity demanded is at Q0 and price is at P0. Increase in
demand due to increase in income shifts the demand curve from D0 to D1. At the same time,
there is an increase in supply of goods that causes a rightward shift of supply curve to S1
from S0and increase in supply is more than increase in the demand which causes the price to
fall below the market price.. Here, new equilibrium is determined at E1 with new quantity
being sold at Q1 and new price at P1.

MACROECONOMICS
Section 3:
Answer to Q3.a.
Requirement a)
Price elasticity of demand is the sensitivity of the changes in the quantity demanded
due to change in the price of product or commodity. There can be considerable variations in
the degree of changes in quantity demanded and such variations is known as elasticity. That
is price elasticity can be perfectly elastic, unitary elastic, perfectly inelastic and elastic an
inelastic. The formula for the computation of price elasticity is given by proportionate change
in demanded quantity divided by proportionate changes in price (Piazzesi and Schneider
2016). That is, it captures the percentage change in quantity due to the percentage increase or
decrease in price.
Requirement b)
Income elasticity of demand is the changes in the quantity demanded due to increase
or decrease of income of consumers. It is obtained by dividing the proportional change in the
demand due to proportional changes in income (Sawyer 2018).
Requirement b)
Cross elasticity of demand captures the sensitiveness of variation in demand one
product brought by the variation in the price of other product. It is obtained by dividing the
variation in the quantity demanded of one product due to variation in the price of another
product. An increase in price of one product would cause an in demand of another which
implies that the product is substitutes (Kaplan and Violante 2018). When products are
complementary, an increase in price of one would also cause fall in the demand of other.

MACROECONOMICS
Answer to Q3.b.
Revenue of the firm is impacted due to the price elasticity of demand and the
relationship between these two variables is considered as an important metric for marketers.
An insight into the price elasticity of demand helps the business in setting the price of the
products so that sales can be maximized. Total revenue generated by the firm is maximum
when the price elasticity of demand is one that is there is an equal variation in the demand of
the product due to variation in its price (Lee et al. 2017).
The above chart depicts the demand curve, marginal revenue curve and total revenue
curve. It is clearly observed that total revenue is maximized when price elasticity is one.
Answer to Q3.c.
Demand curve is classified differently under the concept of price elasticity of demand
in the form of perfectly elastic demand, elastic demand, perfectly inelastic demand, inelastic
demand and unitary elastic demand. The different classifications are depicted in the chart
below:
1. Perfectly elastic

D
P
Q
DP
Q
MACROECONOMICS
Value of elasticity of demand is infinity as there would be infinite increase in quantity
demanded due to change in price.
2. Perfectly inelastic
Value of elasticity of demand is zero as there would not be any change in quantity
demanded due to change in price.

D
P0
P1
Q0 Q1
D
P0
P
1
Q0 Q1
MACROECONOMICS
3. Inelastic demand
Value of elasticity of demand is less than one as change in quantity demanded is less
than change in price.
4. Elastic demand

D
P0
P1
Q0 Q1
MACROECONOMICS
Value of elasticity of demand is more than one as change in quantity demanded is
more than change in price.
5. Unitary elastic demand
Value of elasticity of demand is equal to one as change in quantity demanded is exact
the change in price.

MACROECONOMICS
References list:
Fiedler, B.A. and Costantini, V., 2018. The Challenge of Implementing Macroeconomic
Policy in an Increasingly Microeconomic World. In Translating National Policy to Improve
Environmental Conditions Impacting Public Health Through Community Planning (pp. 1-
21). Springer, Cham.
Fuchs-Schündeln, N. and Hassan, T.A., 2016. Natural experiments in macroeconomics.
In Handbook of Macroeconomics (Vol. 2, pp. 923-1012). Elsevier.
Kaplan, G. and Violante, G.L., 2018. Microeconomic heterogeneity and macroeconomic
shocks. Journal of Economic Perspectives, 32(3), pp.167-94.
Lee, J., Ihm, J. and Ryu, D., 2017. Human capital measures and stock return predictability:
Macroeconomic versus microeconomic approaches. Finance Research Letters, 21, pp.53-56.
Martins, N.M., Pires-Alves, C.C., Modenesi, A.D.M. and Leite, K.V.B.D.S., 2017. The
transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic
issues. Journal of Post Keynesian Economics, 40(3), pp.300-326.
Nakamura, E. and Steinsson, J., 2018. Identification in macroeconomics. Journal of
Economic Perspectives, 32(3), pp.59-86.
Piazzesi, M. and Schneider, M., 2016. Housing and macroeconomics. In Handbook of
macroeconomics (Vol. 2, pp. 1547-1640). Elsevier.
Sawyer, M., 2018. Microeconomics, Mesoeconomics and Macroeconomics. In Alternative
Approaches in Macroeconomics (pp. 105-126). Palgrave Macmillan, Cham.
Syverson, C., 2019. Macroeconomics and market power: Context, implications, and open
questions. Journal of Economic Perspectives, 33(3), pp.23-43.