• Join over 1.2 million students every month
• Accelerate your learning by 29%
• Unlimited access from just £6.99 per month
Page
1. 1
1
2. 2
2
3. 3
3
4. 4
4
5. 5
5
6. 6
6
7. 7
7
8. 8
8
9. 9
9
10. 10
10
11. 11
11
12. 12
12
13. 13
13
14. 14
14
15. 15
15
16. 16
16

# Markets and Price Determination

Extracts from this document...

Introduction

Middle

Supply of seasonal goods falls out of season. Natural factors (e.g. weather, earthquake) Perfect weather can boost the supply of crops. Floods, earthquakes, hurricanes, etc can decrease supply of goods temporarily or permanently. Man-made factors (e.g. strike, war) End of a strike or of a war will boost supply. A strike, fire, theft or outbreak of war will reduce supply. The Determination of Price Equilibrium point = the point at which quantity demanded is exactly equal to quantity supplied, and where the market price will be established. Market equilibrium = Point where the D and S curves intersect = Point E. Equilibrium price = Price at the market equilibrium = p. Equilibrium sales = Sales level at the market equilibrium = q. At price p, consumers buy q goods and maximise their utility, while producers sell q goods and maximise their profits. Any attempt to charge a price other than p will lead to a disequilibrium situation and will activate market forces that will return the market to equilibrium. At price p1, demand for goods will only be q1 while supply will be q2. Hence there is an excess supply of goods (also known as a 'glut') causing price to fall back to p (a buyers' market). At price p2, demand for goods will be q3 while supply will only be q4. Hence there is an excess demand for goods (also known as a 'shortage') causing price to rise back to p (a sellers' market). Causes of Price Changes The only way that the price of a good can change, unless the government is price fixing, is for the market equilibrium to move to a new position. This will occur if conditions in the market alter, leading to a shift in either the demand or supply curve. There are four possibilities, two for a price rise and two for a price fall. A price rise (i) ...read more.

Conclusion

20 �100 Price elasticity of supply Price elasticity of supply = The responsiveness of the supply of a good to a given change in its price. It is calculated using the formula: price elasticity of = % change in quantity supplied supply (PES) % change in price Elastic supply = quantity supplied of a good is sensitive to a change in its price. PES > 1 Inelastic supply = quantity supplied of a good is insensitive to a change in its price. PES < 1 Unit elastic demand = quantity supplied of a good changes by an equal percentage to the change in its price. PES = 1 The slope of the supply curve will reflect the good's price elasticity of supply. S1 = perfectly inelastic supply (PES = 0) S2 = inelastic supply (PES < 1) S3 = unit elastic supply (PES = 1) S4 = elastic supply (PES > 1) S5 = perfectly elastic supply (PES = ?) Factors determining a good's price elasticity of supply * Time - when the price of a good changes, its supplier has to adjust production, but this cannot be done quickly because the factors of production have to be hired or fired. Supply is less elastic in the short run than in the long run. * The availability of excess capacity or stocks - if a supplier is not working at full capacity, there is slack in the production system, which will enable supply to react more quickly to a price change and hence be more elastic. The same is true if a producer is carrying stocks of unsold goods. * The availability of factors of production - if the price of a good rises and the supplier wishes to extend output, more factors of production will be needed. If these are easy to obtain, supply will be more elastic. Factors of production will be available if there is a recession, with high unemployment and plenty of empty (closed down) shops on the high street. ...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

# Related International Baccalaureate Economics essays

1. ## Economics Notes. Elasticity of Demand and Supply.

- It is important for all firms to know the XED values of their products since they should be aware of the consequences of demand for their product if there is a change in price of a close rival's product.

2. ## Korean War

Temperatura (�C)(� 1.0 �C) Corriente El�ctrica (A) (� 0.001 A) 70 0.110 23 0.330 11 0.390 Gr�fica 2.2 Tabla 1.6 Plomo (Pb) Temperatura (�C)(� 1.0 �C) Corriente El�ctrica (A) (� 0.001 A) 70 0.005 23 0.051 14 0.171 Gr�fica 2.3 Tabla 1.7 Zinc (Zn)

1. ## Has the Time Come to Legalize Drugs?

If there is a reduced supply, there is an increase in price of the good. Drug-addicts are helpless, and thus they will buy the drug for the higher price, giving the criminal dealer more profit. Every time the government thinks it is winning its drug war, it is actually losing;

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

A change in the quantity demanded would be equal to a movement along a demand curve while a change in demand would fit more with a shift in the demand curve. In the graph above, one can indicate the movement along a demand curve through looking at the price and quality demanded.

1. ## Is there possibilities of war for resources?

country invade other, internal, civil war (Africa?s counties), war masque as piece operation, but it?s real goal is to grab the resources of attacked country (Iraq, Libya etc), and economic war leaded usually by some kind of sanctions and by the help of the world institutions and multinational companies.

2. ## Using income elasticity of demand, explain the difference between normal, necessity, and inferior goods.

For inferior goods, the value of income elasticity of demand will be negative as the demand for the product will decrease as the income increases as people will start to purchase larger quantities of superior goods that they are now able to afford.

1. ## What new possibilities do developments in technology provide for families?

the student starts to play and play, hours and hours and he starts to stay alone in his room to play without any communication with the parents. I already saw a few people who experienced this and for them it was really hard to get out of the addiction It

2. ## Article Commentary -TECHNOLOGY INDUSTRY SEES WINDOWS 7 BOOSTING MARKETS

Complementary goods: Complement goods are goods in joint demands therefore demanding one good, a consumer will also demand another good. ?Economic theory suggests that a rise in the quantity demanded of one complement will lead to an increase in the demand for another good, resulting in an increase in the

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