I am interested in how the economy of a country works - the price changes of a fish market.

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Introduction

I am investigating this report because I am interested in how the economy of a country works. Even though I only investigated the price changes at the fish market, it was enough to get a fair representation of how things work in this country, particularly about economics because each country has different government which therefore have different ways of determining what to produce for whom to produce and how to produce. For example, in China the government decides what, how and who to produce as the country practices planned economic system, while the U.S government let the people or the market force make the decisions mentioned before.

Economists would observe the economy of a country. The various observations will make them better at understanding the cause and effect of the market forces. In the Netherlands, the selling of drugs is made illegal by the government with demands from the market. Economists in the country will try to predict what are the impacts on the selling of drugs, whether it is worth or not. If the selling of drugs will cause an increase in social problems or a decrease in the welfare of society, than they could suggest to the government to prevent the selling through legal ways.

Demand

Consumer’s demand plays a large role in determining how scarce resources are used in the economy of a country. The demand is determined by the want or desire for a good or service backed up by the willingness an ability to pay for it.

The amount of a commodity consumers are willing and able to buy is known as quantity demanded.

Law of demand- the higher the price, the lower the quantity demanded and vice versa. This can be shown in this diagram can be shown on this diagram.

The Market Demand Curve.

P1

        As price falls

P2                                                                                                  D

                                 

Q1                    Q2

                                Quantity demand Extends

This graph shows that as price falls from P1 to P2, the quantity demanded extends from Q1 to Q2.

An extension of demand- it is how demand changes with a fall in price, given that no other factor that could affect demand.

A contraction of demand- it is how demand changes with an increase in price, given that no other factor that could affects demand.

Shift in demand.

An increase or decrease in price will cause the demand curve to contract and extend respectively, given that no other factor affect demand. However, if anything other than price affects demand curve, this could shift demand outward or inward depending on the effects of the cause.

What causes demand to shift?

There are several things that could cause a demand curve to shift. These are:

  1. Changes in income taxes- by reducing the amount of tax on incomes, people will have more money to buy commodities and producers could produce more because the low tax means a lower cost of production. This may be done to decrease the amount of unemployment.
  2. Changes in people’s income- a rise in income means that there is more money in the market. When people have more money their buying power will be greater. A rise in incomes will cause a rise in demand for many goods and services, while a fall in incomes will cause demand to fall for most goods and services.
  3. Changes in the price of other goods- some goods need other goods to go with them. These types of goods are known as complimentary goods. However, some goods act as a replacement to other goods. This is known as substitute goods.
  4. Changes in the population- an increase in the population of a country means that there will be more demands on goods and services. This will cause the demand for commodities to shift outwards.
  5. Changes in tastes and fashion-normally when a famous actor or actress starts to wear something different, this will cause the demand for that particular product as fans want to look like their favourite person. When James Dean started to wear jeans and smoked cigarette to look cool, the demand for these two items increase dramatically. This shows that there were changes in trend and fashion that lead the demand curve to shift.
  6. Other factors- weather; a hot summer can cause the demand for thinner clothing material to increase. The increase in awareness of the destruction of forests could lead consumers to consume less wooden materials or paper.

A rise in price for a complementary good will cause the demand for other goods to decrease, while a rise in price for substitute goods will cause an increase in demand for other goods.

Supply

Supply is the amount of goods or services that producers are willing to make and sell at possible prices. The amount of commodities that producers are willing and able to make is known as quantity supplied.

The higher the price the more firms are willing to make and sell a product at a price over and above what is the cost price to make the product. This is because they expect to make more profits. As price rises, quantity supplied rises.

Law of Supply- the higher the price, the more commodities producers are willing to make and sell. This is because producers are trying to maximize sales.

The market supply curve.

 P

P1

       AS PRICE RISES        

P2

   0                                     P2                P1                Q

                                QUANTITY SUPPLIED EXTENDS.

An extension of supply- it is how the supply changes with a rise in price, providing that there is no other factor that could affect supply.

A contraction of supply- it is how supply changes with a fall in price, providing that there is no other factor that could affect supply.

Shift in supply.

When the price of goods or services increases, producers will produce more and vice versa. If the price stays constant, but other factors change this will cause the supply curve for that particular commodity to shift. The supply curve can be shifted by the following factors:

  1. Changes in the price of other commodities- producers produce commodities that they think are going to bring in the largest profit. If the price of a commodity increases, producers are likely to shift their production into that commodity.

For example, a farmer is growing carrots. If he found out that it is more profitable to produce cucumbers, he will stop producing carrots and change his production into cucumbers. This has caused the supply curve for carrots to shift inwards, meaning that fewer carrots are available. Unlike carrot, the supply for cucumber will shift outwards, meaning that more cucumbers are available in the market.

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  1. Changes in the costs of factors of production- there are four types of factors of production. They are labour, enterprise, land and capital. If the costs of any of these factors increase it is likely that the costs of production will increase too.

For example, an increase in the wages of workers will reduce the profits that firms will make. This is due to an increase of the costs of production. When the costs of production have increased, fewer profits are to be expected by firms. So they are less willing to supply commodities at ...

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