• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Essay on Supply and Demand and the operation of markets.

Extracts from this document...

Introduction

´╗┐Alex Viguier Economics October 7,2012 Assignment 11.1 Part A: A demand curve: In economics, demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good. Demand: refers to how much (quantity) of a product or service is desired by buyers. A typical demand curve is shown in the graph below, representing as a negative straight line: The higher the price of a good, the less people will demand that good (or service). In other words, the higher the price, the lower the quantity demanded. The law of demand can prove this. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good, in other words this good becomes ?special? because it is rare. As a result, people will naturally avoid buying a product that will force them to relinquish the intake of something else they value more. This demonstrates why the curve is sloped negatively. Example: A real life example would be one of two similar soda companies. If Pepsi and Coca Cola were equal in quantity demanded and price and Coca Cola decided to raise the price thinking their revenue would rise, not only would they not maximize their product, they would loose costumers to Pepsi. Pepsiwould be selling a cheaper version of coca cola therefore consumers would consumers from producers that are sell cheaper goods. ...read more.

Middle

It is difficult to choose among the competitive substitutes, as human wants are usually unlimited, we are greedy and always tend to desire more, choices often have alternative uses. Being the building blocks of economics, it is important to ask basic economic questions to reflect upon the best decisions for the community. Economic questions such as ?what to produce?, ? How to produce it? and ?whom to product it for?. Therefore this ties in to allocate resources to the best of its abilities, one needs to decide what will be more beneficial and useful to the community. An example of this if a product was needed by both a school and a technology company such as apple, the source would most likely go to schools, since education benefits the population and community and therefore is more supportive to people than an I pod. A free market economy a market where the price of a good or service is determined by supply and demand, rather than by governmental regulation. Considering that the demand and supply forces make up the quantity and price of a good, this gives the community freedom in which enables us to call it a free market. A free market contrasts with a controlled market, where price and quantity of the good (supply and demand) are controlled by government. Therefore, the government in a free market does not have the ability to decide what goods will be made for what price. ...read more.

Conclusion

The government sets legal and institutional frameworks for firms and markets to work in. Regulation needs to be determined to set proper rules to enforce the firms and markets in the right direction. Government influences the behavior or business and the constant economic activity. The government?s intervention also connects through the market in direct and indirect ways. In direct ways one can say there is acting as a supplier, through direct goods and services to the public as well as acting as a buyer, through competitive aid. While indirectly, the government participates in taxes and subsides, through changing the goods and services to match the quality of demand needed as well as regulation and influence. In conclusion, the evidence for and against that the market forces of demand and supply will always lead to the best allocation has both positive and negative aspects to the yes and no. Overall, One can say that NO, the market cannot and will not always lead to the best allocation. Though having the consumers being able to decide the demand quantity and having the producers balancing and aiding to find where the goods go is a chance for more choices to be made, but demerit goods to be over provided. There is also the issue that the competitive forces of supply and demand will not produce quantities of goods where the prices reflect the marginal benefit of consumption, which would lead to allocative inefficiency. One can say that without the building blocks of the government, the market would crumble. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Extended Essay Economics

    Generally, the advantage of a fixed exchange rate is the clarity that it brings. Costs, revenues and profits are supposed to be clear and predictable making it simple for importers and exporters to calculate earnings. This in turn will encourage trade as well.

  2. Why does there appear to be a movement towards oligopoly in certain markets? Evaluate ...

    have the same price, the oligopolists behave like a monopolist when such collusion takes place, as they charge the same (high) prices and the profits get shared according to the market shares. Although producers would benefit from such a collusion, consumers wouldn't, a collusion would result in higher prices for the consumers to pay and less output.

  1. Extended Essay

    price by the state paid a huge amount of subsidy to the E-ON Hungaria Zrt. With this equal subsidy system the state has created a shortage and the natural gas has become subscribed. 1.2 The privatization of the natural gas market The state privatised the market for natural gas.

  2. Economics Extended Essay - To what extent has the market for paintings in South ...

    appreciates as he has less money than to spend than he thought he would have. The demand for paintings by speculators has also reduced greatly. This is because people who would speculate in paintings would do so only because they felt that the price was going to increase.

  1. Old IB Questions

    The market structure in the Japanese taxi industry is the most similar to perfect competition. Perfect competition has the following characteristics: * Large numbers of small firms * Each firm has no control over the price * There is no product differentiation; homogenous products * There are no barriers to

  2. Econ IA-Supply and Demand

    This can be show in a graph: As the graph shown, the firms are earning abnormal profits. They produce at MC=MR, the profit-maximizing point and charge price higher than their average cost curve. A collusive oligopoly happens when firms under oligopoly engage in collusion, they may agree on prices or market shares.

  1. Explain how interdependence and uncertainty affect the behavior of firms in the oligopolistic market

    Examples are major mortgage lenders and petrol retailers. Tacit collusion occurs where firms undertake actions that are likely to minimise a competitive response, e.g. avoiding price cutting. So when a market is dominated by a few large firms, there is always the potential for businesses to seek reduce uncertainty and engage in collusive behaviour.

  2. Use a diagram to show the consequences of government imposing a price above or ...

    Because the price of rents was below equilibrium price, landlords felt that they could earn much more with their rents. With the decreasing supply of rents in Mumbai, the number of demand increases. However, these demands could not be fulfilled with contracting supplies.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work