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.

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