Economics Assignment: Understanding Demand, Supply, and Trade Policies

This economics assignment provides a detailed analysis of demand and supply dynamics, differentiating between changes in quantity demanded and shifts in the demand curve. It explores factors influencing demand, such as income and prices of related goods, and examines the implications of these changes on market equilibrium. Furthermore, the assignment delves into the realm of international trade, specifically focusing on the fallacious impacts of President Trump's protectionist policies. It discusses the economic theories behind free trade, the potential welfare losses from tariffs, and the adverse effects on both consumers and industries relying on imported inputs. The assignment concludes that protectionist measures may harm the long-term prospects of the US economy by undermining the benefits of free trade. Desklib offers this assignment solution along with a wealth of study tools and resources for students.

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
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Table of Contents
Answer 1..........................................................................................................................................2
Introduction..................................................................................................................................2
Analysis.......................................................................................................................................2
Conclusion...................................................................................................................................5
Answer 2..........................................................................................................................................5
Introduction..................................................................................................................................5
Analysis.......................................................................................................................................6
Conclusion...................................................................................................................................8
Reference List..................................................................................................................................9

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Answer 1
Introduction
Consumer demand is an important microeconomics concept that represents buyers’
willingness to buy a good at a given price (Hill & Schiller, 2015). The section briefly explains
the point of differences between change in quantity demanded and change in demand.
Analysis
Change in quantity demanded is a concept that explains change in amount of goods
demanded. Quantity demanded of a good changes following a change in own price of the good
assuming other factors affecting demand as constant. The change in demanded quantity of a
good depends on the relationship between own price and demand. The proposition of law of
demand suggests that price of a good is inversely related with quantity demanded of the good
when other factor remain constant. When quantity demanded increases due to a decline in price
then it is called expansion of demand (Maurice & Thomas, 2015). If quantity demanded
decreases following an increase in price, then it is termed as contraction of demand. Change in
quantity demanded is figured out by change in point on the demand curve. An expansion of
demand is captured by upward movement along the demand curve while a contraction in demand
is captured by a downward movement along the curve. The following figure describes the
influence of a change in quantity demanded in a framework of market demand and market
supply curve.

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Figure 1: Increase and decrease in quantity demanded
An increase in quantity demanded following a decline in price to P2 is shown by a
downward movement on the demand curve causing an excess demand in the market. In contrast,
quantity demanded decrease due to an increase in price to P1. As demand moves upward there is a
shortage of demand given the supply curve S1S1.
Change in demand is a broader concept. Instead of expansion of contraction in demand
along the demand curve, a change in demand is figured by a shift in the entire demand curve. A
shift in the demand curve occurs because of a change in other determinant elements of demand
but price. Several factors influence price of a good (Chiang, 2017). After price, the next
important determinant of demand is income. An increase in income increases purchasing power
of people leading to an increase in demand. Reverse is the case when income decreases. In
addition, to income other factors affecting demand are price of substitute or complementary
good, advertisement, preference pattern and other. When demand increase due to a favorable

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change in these factors then demand curve shifts upward. Unfavorable effect of these factors on
demand causes a downward shift in the demand curve (Nicholson & Snyder, 2014). The figure
below depict changing market scenario associated with an increase or decrease in demand.
Figure 2: Increase in Demand
The above figure shows an increase in demand caused from a favorable change (increase
in income, increase in price of substitute or others) by the rightward shift in the demand curve to
D1. This results in a new equilibrium corresponding to a higher equilibrium price and quantity.

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Figure 3: Decrease in Demand
In the above figure decrease in demand due to unfavorable changes (decrease in income,
decrease in price of substitute or others) is shown by the leftward shift in the demand curve to
D11. This results in a new equilibrium corresponding to a lower equilibrium price and quantity.
Conclusion
Conclusively, change in quantity demanded is a distinct concept of change in demand
both in terms of direction of change and factors causing this change.
Answer 2
Introduction
Protectionist policy in trade is a form of policy that aims restrict unfair competition
coming foreign industries. This is though a political measure but it has a destructive effect on the

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economy in longer term (Edmond, Midrigan & Xu, 2015). The section discusses fallacious
impact of president Trump imposed protectionist policy in United State.
Analysis
International trade is a process of free exchange of goods and services among nations that
are produced with the most efficient way. Opening to trade increases economic efficiency as it
allows nation to produce in area of specialization. The allocation of resources in industries where
country enjoys advantage over other nation increases national and global welfare. Two primary
theories of specialization and trade are the theory of absolute and comparative cost advantage.
Theory of absolute advantage given by Adam Smith determines area of specialization depending
on country’s ability to produce a good a lower absolute cost. Comparative advantage on the other
hand is determined from the relatively lower opportunity cost (Coşar & Fajgelbaum, 2016). Free
trade is considered as mutually beneficial exchange as all the participating nations gain from
availability of large variety of goods at a minimal cost.
Specialization of a nation depend on relative abundance of resources. United State being
rich in land and capital (both human and capital) enjoys an advantage in land intensive
agricultural product and capital intensive products. The capital goods that US export include
commercial aircraft, industrial machines, electric apparatus and telecommunication and medical
equipment. The agricultural export of United State include soybean. Corn, meat and poultry. In
exchange US import mostly labor intensive finished and intermediate product (ustr.gov, 2018).
As a result of higher export over import US is running with a trade deficit. The President
Trump has viewed the solution of US trade deficit as implementation of a trade protectionist
policy. The protectionist policy that Trump has taken is the imposition of a substantial tariff on

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millions of worth goods imported from different nation of EU, China, Japan and Mexico. Trump
has proposed 45 percent of tariff on China’s import while 45 percent tariff on Mexico’s import
(abc.net.au, 2018). The argument presented by Trump in favor of protectionist policy include
reducing trade deficit and protect US from unfair trade practices. Figure below portraits the
effect of trade protection in form of import tariff
Figure 4: Import tariff and welfare effect
The immediate effect of tariff is realized in form of an increase in the price of imported good in
domestic market. As a result, domestic producers might be benefitted by an increase in producer
surplus at the cost of loss in consumer surplus. As all the lost consumer surplus do not transfer to
producers there are misallocation of resources causing a welfare loss as shown by the shaded
area in the above figure.
The free trade provides a great support to middle and lower class American in terms of
providing them huge job opportunities in the exported sector. The prosed tariff would trigger a

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trade war between US and its trade partners which further worsens trade balance of US
(abc.net.au, 2018). The policy also hurts US industry that are relying on imported inputs.
Conclusion
The discussion so far made indicates that proposed trade protectionist policy would make
no better off for the US economy. Instead, it hurts long term prospect of the economy by
eliminating benefits of barrier free trade.

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Reference List
Benefits of Trade | United States Trade Representative. (2018). Retrieved from
https://ustr.gov/about-us/benefits-trade
Chiang, E. P. (2017). Microeconomics: Principles for a Changing World. worth publishers
Macmillan Learning.
Coşar, A. K., & Fajgelbaum, P. D. (2016). Internal geography, international trade, and regional
specialization. American Economic Journal: Microeconomics, 8(1), 24-56.
Edmond, C., Midrigan, V., & Xu, D. Y. (2015). Competition, markups, and the gains from
international trade. American Economic Review, 105(10), 3183-3221.
Hill, C., & Schiller, B. (2015). The Micro Economy Today. McGraw-Hill Higher Education.
Maurice, S. C., & Thomas, C. (2015). Managerial Economics. McGraw-Hill Higher Education.
Nicholson, W., & Snyder, C. (2014). Intermediate microeconomics and its application. Nelson
Education
Trump plans to hit China with tariff hike; Wall St sinks amid trade fears. (2018). Retrieved from
http://www.abc.net.au/news/2018-08-02/donald-trump-tariff-china-trade-war-hike-25pc-
wall-street-sink/10064726