MACRO ECONOMIC THEORY

Macro Economic Theory



Macro Economic Theory

Assignment 1

Supply and demand Model

Silver and Gold are used for investment purposes from a long time. These metals are considered as a form of money from a long time. However, silver is no more considered for the standardization from majority of developed countries. Silver has been mainly demanded for industrial purposes such as making jewellery, coins, and use it for trading purposes over exchange during 2009. The price of silver is usually derived from market forces of demand and supply. The price of silver is usually very much volatile mainly because of less market liquidity and demand of sliver has also been fluctuated due to its usage for being store of value and industrial purposes. These factors result in fluctuation in determination of market price of silver.

The price of silver has been increased 10 times higher in last 10 years. But the supply of silver has increased by only 28%. One of the main reasons behind it is the time lag in producing new silver discovery. The suppliers of silver are very few so far and this could be the primary reason for it. The increase in price has a less significant impact on the profitability of mines and suppliers. Other than that bad economic conditions and less production of copper, zinc and other metals have also affected the price of silver. The increased cost of silver production, expensive labour, energy, and machineries have adversely affected the silver industry (Mining Stock Valuator, 2012, pp. 1).

Gold is the most demanded metal worldwide. The total demand by Asian, Middle Eastern and sub continent of India has accounted for 66% in 2012. Other half of its demand is represented by china, India, US, Turkey, The particular culture and tradition within a country also derives the demand of gold. The demand of gold has been majorly seen for jewellery particularly in India and amounted for around $101.8 billion. The price of gold has been increased immensely during last five years due to extremely higher demand by 430%. However, the increased inflation and financial crises from 2007 to 2009 have had a negative impact on the purchasing power of consumers. The demand of jewellery is very much dependant on affordability and desirability factors of consumers. Gold has been a lucrative investment for people since 2003 it is the reason that led to an increase of 435% in the value of Gold. Gold as a metal has also used for electrical purposes and represented 11% of gold's demand from this sector. The supply of gold has remained stable over time and resulted in a supply of 2690 tones of gold for last five years (World Gold Council, 2012, p. 1).

Properties of indifferent curve

Indifference curve represent the combo of two items that provide the similar satisfaction level to consumers. There are five properties of indifferent curves, which are explained below:

Indifference curve has a negative slope i.e. it slope down from left to ...