Microeconomics 5 Assignment: Income, Supply, and Business Cycle

This microeconomics assignment solution addresses key economic concepts. The first section analyzes the impact of income increases on the demand for normal goods, explaining how rising incomes affect equilibrium price and quantity. The second section examines how an increase in banana suppliers affects market equilibrium. The final section delves into the business cycle, analyzing China's economic phases in 2006 and currently, assessing unemployment, inflation, and GDP to determine the expansion and contraction phases. The assignment uses economic principles to explain market dynamics and business cycle fluctuations, supported by relevant references. This assignment solution provides a comprehensive understanding of microeconomic principles and their real-world applications.

MICROECONOMICS 1
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MICROECONOMICS 2
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Quantity Demanded Quantity Supplied
b)
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Quantity Demanded Quantity Supplied
New Quantity Demanded

MICROECONOMICS 3
In this case, the equilibrium price and quantity has increased. This is because since TV is a
normal good, increase in income increases the quantity demanded of the good. This is because
more families would want to own a tv since they are now able to afford it due to the increase in
income that they experience (Kevin, 2015).
2.
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Quantity Supplied
As more banana suppliers enter the market, the equilibrium price decreases and the equilibrium
quantity increases. This is because with increase in suppliers, the price decreases. This is
especially because with increase in suppliers, the market is oversupplied with bananas hence the
subsequent decrease in price. Also with increase in income, the demand increases. This is
because the increase in income may increase the budgetary allowance for individuals in
purchasing more bananas. However the increase in price related to the price increase is not
enough to regain the initial price level leading to a lower equilibrium price and an increase in
equilibrium quantity.

MICROECONOMICS 4
3. a) As per my perception, china experiences the expansion phase of the business cycle in the
year 2006. First, there was a steep decline in the unemployment rate. This could be as a result of
increased level of investment which made the labor market more capable of absorbing more
individuals. In addition, the inflation rate was quite low. This could have been due to manageable
levels of demand and supply present in the market. The rate of inflation had a small deviation
margin as the year progressed. There China export steadily increased while the business
confidence still incremented implying that the gross domestic products and the gross national
products rose thus maintaining an equilibrium even in absence of adequate export to earn China
revenue. It meant that investors were quite hopeful about the economy and therefore were
motivated to invest in it (Frank, 2014).
b) This would further positively affect the china economy since increase in employment would
increase the level of supply in the market which will facilitate for more trade as well as in
country purchases. More individuals will have money to spend which may push the prices high
leading to increased inflation due to increase in demand. The business confidence will also
increase further due to positive expectations about the future (Nicholson and Snyder, 2014).
c) The current phase of china in the business cycle is probably the contraction phase. The rate of
unemployment is high at 3.6 percent, the inflation rate is low at 8 percent and the Gross
Domestic Product is also low at 1.7 percent (Boland, 2014).
According to the contraction phase, generally the economy as a whole is at a decline. It is
especially revealed when the economy of a country has declined for two or more consecutive
quarters. China has experienced a decline in its GDP in the last two quarters as well as an

MICROECONOMICS 5
increase in the inflation rate as well as the level of contraction. It is therefore adequate to say that
indeed the country is at the contraction phase of the business cycle (Baumol and Blinder, 2015).
References
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Boland, L.A., 2014. Methodology for a New Microeconomics (Routledge Revivals): The Critical
Foundations. Routledge.
Frank, R., 2014. Microeconomics and behavior. McGraw-Hill Higher Education.
Microeconomics, E.E., 2015. KELVIN WONG. Cell, 808, pp.386-8406.
Nicholson, W. and Snyder, C.M., 2014. Intermediate microeconomics and its application.
Cengage Learning.