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Outline the Characteristics and Operations of the Market System.

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Introduction

Outline the Characteristics and Operations of the Market System. Introduction The UK is a mixed economy meaning that it has both a free market and a planned market, therefore some of the resources are controlled by the government, whilst others are in private hands. In the UK most of the market is free leaving only the post office and the BBC in the public sector. In the UK the government only has direct power over the BBC and Post Office, it is the governments responsibility to set prices which everyone can afford and make sure that necessary services are provided. However the government is not able to directly intervene in the costs, produce and services in that of the free market economy. It is left to the firms or individuals trying to make a living to try to decide what to produce and the cost of the service. The government can however give incentives to try to encourage individuals and firms to take up a new idea, for example farmers are given grants toward growing genetically modified crops. So although the UK government has no direct control on the working of the market system it can enforce laws and legislation to keep standards high, costs reasonable and consumers fairly happy. The government also spends much money raised from various taxes to fund hospitals, schools and government schemes such as grants. What the government cannot do is control demand, as in a free market anything can be made and any service offered. Key determinants of supply and Demand. Demand is the amount of a product that a consumer is willing to buy at any given price. Changes in demand are most usually due to a change in price of the product, for example if the price of DVD's was to decrease people would buy more of them as they can buy more for the same amount of money as before, but there are many other factors involved in changes in demand. ...read more.

Middle

Price elastic: a product for which when the price is increased/ decreased by a certain amount the amount sold increases or decreases by a much larger amount in proportion to the change in price Price inelastic: when change in the cost of a product leads to a much smaller change in the quantity sold. This tends to happen with products with very few substitutes which are deemed as necessary. This can be primarily due to efficient use of branding and advertising. A change in price will not really affect the demand to any great extent. Factors affecting price elasticity of demand: there are two main factors which are known to affect price elasticity of demand. 1. The number of substitutes for a product. A product with a wide range of substitutes is likely to be highly sensitive to changes in price and therefore be relatively price elastic. This can be seen in the case of fish. If the price of one type of fish goes up it is likely that consumers will swap to another type of fish. Therefore the more substitutes there are it is harder for a product to increase its price without losing customers. 2. Time. The longer a period of time, the more price elastic the demand for a product is likely to be. The more time consumers are given, the more able and willing they are to adjust their habits. For example an increase in the price of gas will cause people in the short term to pay more for gas but in the long run people will change from gas to electricity or oil. Income Elasticity of Demand: Income elasticity measures the way in which demand changes when consumers' real income changes. It can be found using the following formula: Percentage change in quality demanded Percentage change in income The are two main essentials in a product's income elasticity: 1. ...read more.

Conclusion

Even with stricter laws on imports the number of imports increased, this was due to the pound being very strong. Now in 2001, although the consumption of beef is still a worry, the demand is steadily increasing, with people who previously reduced the amount of beef they ate regaining their trust of UK beef products. The price of beef is still relatively inexpensive to what it was before the crisis although it has increased slightly over the last year as demand has risen. The supply of beef has also increased since the all time low in 1995 when all the cattle were slaughtered with suspicion of the BSE virus being present in them. Another reason for the increase in supply is due to an increase in the supply of beef from outside the UK. This is due to the pound being strong, thus giving other countries more money if they sell their products within the UK. Reasons for the decrease in demand for beef: * The main reason for the decrease in demand for beef was because people were scared of the consequences of eating beef. This was caused by the advertising that beef contained BSE, of which the human form is CJD, thus the eating of infected beef can cause humans to develop CJD. However if people were to look at the statistics, rather than just rushing into stopping eating beef products, they would see many more people have died from salmonella from chickens and pork in the last year, than any recorded number of people dieing from the result of eating beef and becoming infected with CJD. However during the BSE scare the demand for both chicken and pork have risen due to the decrease in demand for beef. Whether beef will ever regain the status it had before in the market is to be seen, or whether or not people will trust it to start eating it again. At the moment the demand for beef is gradually increasing, although it is still far below the demand before the BSE crisis. ?? ?? ?? ?? 1 ...read more.

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