Macro and Microeconomics Issues Essay Example | Topics and Well Written Essays - 2500 words - 2

Macro and Microeconomics Issues - Essay ExampleThe analysis of equipment casualty and income effects based on the estimated subscribe system has suggested that with the increase in food price inflation, the demand for fasten food (rice, wheat, and sugar) may not be affected adversely but, that of high-value food commodities is likely to be affected negatively. The increase in the price of orangish due to supply constraints would lead to increase in prices of another(prenominal) fruits in general. Poor people tend to spend more on bread, a staple food item in spite of price increase by reducing their consumption of other food which appeal more. This phenomenon is called as Giffens Paradox. Giffens paradox is not applicable in the case of orange, as it is not a staple food in poor households. Demand for the orange cannot be considered inelastic. Silberberg and Walker(687) observe When the price of the Giffen good changes, therefore, not only does the income margin outweigh the s ubstitution term for the Giffen good, but a similar result is produced for the cross effect on the other commodity. Therefore, increase in the price of orange will lead to increase in the price of other fruits like grapes or apples due to the substitution effect. The increase in price or orange induces farmers to increase the area downstairs crop for oranges which are expected to increase the production of oranges to the normal level of demand in the economy. However, when the farmers suck other alternatives of producing feed or other grasses, may be at a lesser cost of production for manufacture of ethanol, the scenario with regard to supply pattern changes drastically. President George W. Bush called for the United States to reduce its natural gas consumption by 20% in the next decade. Considering the growth rates in consumption of gasoline, simplification in consumption of gasoline is very difficult. He proposed an increase in ethanol produced from corn and the stalks and le aves from corn and other grasses.