Principles of Macroeconomics / Unit 18 MAC 1707 worked example, 60 to 90 seconds
Any Market: The Four-Step Method
The idea
Work any single-market question in four steps and never skip one. First, name the market and draw the starting equilibrium. Second, decide which curve the event touches — demand, supply, or both. Third, decide the direction of each shift. Fourth, read off what happens to price and to quantity.
In practice
A frost destroys part of a coffee harvest. The market is coffee. The event touches supply, not demand, because it changes what producers can bring to market at any price. Supply shifts left. Price rises and quantity falls. Now a second case: incomes rise and, at the same time, a new growing technique lowers costs. Demand shifts right and supply shifts right. Quantity certainly rises. Price is indeterminate, because the two shifts push it in opposite directions, and the answer is that it depends on which shift is larger.
Where people slip
That second case is the one worth drilling. When both curves move, one of the two results is determinate and the other is not, and the correct answer to the indeterminate one is that it cannot be determined. Units two, eight and thirteen each met this, and in every case claiming certainty about the indeterminate variable is the error.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Unlocks
- Nothing yet depends on this.
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