• 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. 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. Growth and Development Problem Set - IB Economics exam questions and answers.

    Actual output is the quantity of output produced, which is always at a point inside the PPC, because in the real world all economies have some unemployment of resources and some productive inefficiency. Potential output is the economy's maximum sustainable output level (a point on the PPC curve)., given the

  2. Extended Essay

    Before the political and economic viewpoint change the whole energy sector was state owned. The price of the natural gas was constantly under the world market price. Every single person, from the poor to the rich equally were subsidised and they paid much less than the world market price.

  1. Allocation of Resources

    Eventually, all industries balance out until they earn normal profit i.e. when Price and Marginal cost curves are equal. This is the effect of perfect competition - it encourages optimal and efficient allocation of resources. Excess demand would put upward pressure on the price, and excess supply would put downward

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

    Furthermore there are a few circumstances, which make it easier for firms in a market to collude. The market demand shouldn?t be too variable and only a small, limited number of firm are in the industry, the demand should be fairly inelastic, each firm?s output can be easily monitored and the information are incomplete.

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

    be paid to leave, thus becoming millionaires when they only had to pay $20 each month.

  2. With the aid of at least one diagram and examples, explain the difference between ...

    as lower prices means lower profitability, and the incentive facing oil groups is to produce less; a decrease in the quantity sublied (Q1 to Q3).

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