Determinants of the supply of a commodity
What does a supply curve illustrate? Other than its own price, what are the determinants of the supply of a commodity. What would make a supply curve shift to the right?
Imagine that the market for orange juice is in equilibrium at a price of $8 per gallon. Provide two demand-related and two supply-related reasons why the equilibrium price could fall to $7.00 per gallon.
What will happen to the market for orange juice if both producers and consumers believe that prices will rise in the near future? Explain your answer.
What will happen to the market for oranges if the government offers price supports to citrus producers? Who will gain and who will lose? Provide examples and explain your answer.
Why is it unfair or meaningless to criticize a theory as “unrealistic?” Provide examples and explain your answer.
Sample Solution
It is unfair and meaningless to criticize a theory as “unrealistic” because the concept of realism itself is subjective. What may be considered realistic in one context may not be in another, depending on individual perspectives and experiences. For example,
neo-classical economics assumes that economic actors are rational and seek to maximize utility through their actions; however, this assumption of rationality is highly contested by behavioral economists who believe that humans often make decisions based on emotional impulses or biases rather than careful consideration of all available data. Similarly, models of perfect competition within markets assume that consumers have complete information about products available for purchase; yet this ignores the reality that most people lack sufficient knowledge to accurately assess their options or opportunities.
The concept of realism also applies differently depending on the type or level of analysis being conducted. While certain theories may appear unrealistic when looking at individual transactions between two parties (e.g., perfect competition), they may offer a useful representation when examined from an aggregate perspective (e.g., market efficiency). Additionally, even if a given model is deemed too simplistic due to its unrealism, it could still serve as a starting point for more detailed analyses later down the road with additional assumptions added into the equation such as price elasticity or externalities. In other words, while realism should always be taken into account when analyzing any economic problem it should never be used as an argument against using any specific theory per se – instead we should focus more on how well those theories explain our observations and provide useful insights into future outcomes under different conditions and scenarios.