Essay #3

1.       a) Demand is the quantity of a good (or service) that consumers can and want to purchase in a given time and given price. So for example a store may buy 5 chairs at 6 dollars each in one day, we can say that the demand for chairs at a price of 6 dollars is 5 chairs per day

b) Economic growth is the increase in the amount of goods (or services) compared from one period of time to another.

 2.   The demand and supply curve increased because China had demanded a lot of cooper which made the price increase up to $8,009.75 in August 2008. Higher quantity of copper is demanded at each price, the demand curve shifts to the right because of this. It will eventually get to equilibrium. There is an excess of demand because the demand curve shifted to the right.

3.       In this case the supply curve had shifted to the left. Lower quantity is demanded for the new washing machines because it is expensive due to the fact that cooper used in the wiring is expensive. The supply shifts in and less quantity is supplied at each price. The washer machines are more expensive and have a decrease in its demand. 

 4. There might be many possibilities for what is likely to happen in the copper market in the coming months.  When it says ‘cooper demand was likely to fall because so many construction projects, which use large amounts of cooper wiring were now finished’, this proves that the demand for copper will decrease, it won’t decrease too much but it will decrease a bit.  Since the projects in where they used cooper for wiring were not finished, there isn’t as much demand as before, so the demand and the supply curve may decrease too. Because there is less quantity demanded at each price. 

‘Moreover preparations for the Shanghai Expo have been keeping copper prices have up since last summer. When the pavilions open their doors in three weeks’ time, buildings have stopped and with it the significant demand for copper will also fall. Indeed after the expo closes at the end of October, the market could be swamped with recycled metal’ this leads to a shift on the left of the demand curve and the same supply curve, however it will also lead to and excess in supply due to the recycled metal.  There will be a fall in the demand curve for cooper.

‘setback when copper traders said that it may be about to fall steeply again’ this is also evidence that the demand curve will shift to the left.

We say that the demand for cooper won’t decrease as much because there are other factors such as new washing machines, fridges and other products that need copper, and those should help to keep the price up.  

Demand Curves Essay Question

1.    Throughout my essay I will be distinguishing between a shift of the demand curve for a product and a movement along the product’s demand curve with definitions and examples of each term mentioned in the question. I will also be showing some diagrams to support my answer.  

The term ‘Demand’ means that it is the quantity of a good (or service) that consumers can and are able to buy at a given price in a given period. For example we can say a store buys 500 apples per week at 10 cents, therefore we can say that the demand for apples in a week at a price of 10 cents each is 500 units in a week. A shift of the demand curve to the left signifies that the demand for a particular good (or service) has decreased less than before. A shift of the demand curve to the right signifies that the demand of that particular good (or service) has increased greater than before. The law of demand states that “as the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus”. Ceteris paribus assumes that when there are different numbers of factors that determine something, only one is changing and all of the others remain constant. So for example, as the price of the apple falls the demand of it will increase because more people are willing and able to buy the product, not because you want to buy it means you are able to buy it. The increase in demand happens for two reasons, income effect means that when the price of a product (or service) decreases, people have an increase in their ‘real income’, so people are more likely to buy more of that product (or pay more of a service) since it increased its real income.. For example if the price of apples was 1 dollar each and after it is 50 cents then the real income of a person will increase because now they can buy 2 apples with one dollar. The demand curve for income will shift to the right because income rises. A substitution effect means that when the price of a product falls, then people want to buy that product and no other similar products, whose prices have stayed the same, so it is more likely people would buy more of that product, substituting it for products that were previously purchased. For example, the company of ‘Grandmother’s apples’ sells their apples for 3 dollars a sack and the company of ‘Momma’s apples” sells their apples for 3 dollars. ‘Grandmother’s apple’ now sells their apples for 2.50 dollars a sack, therefore ‘Momma’s apples’ will be substituted and the demand for ‘Grandmother’s apples’ will increase. The demand curve for ‘Grandmother’s apple’ will shift to the right and the demand curve for ‘Momma’s apples’ will shift to the left.

A movement along a demand curve is caused by a change in the price of a good (or service). As price decreases the movement would be in the right and as price increases the movement would be in the left. When the quantity decreases it is known as contraction. Contraction is when in a period of time goods decline. When the quantity increases it is known as expansion. Expansion is when there is an economic growth. This can be affected by substitutes mentioned before because a change in a price of one product will change the demand of another product. For example if there is a fall in the demand for pork, then there will be an increase in the quantity demanded and a decrease in the quantity demanded for beef, this is a substitute. This means there will be a movement along the demand curve for pork and the demand curve for beef will shift to the left.

Other factors that affect the demand for a product are the size of the population, changes in the age structure of the population, changes in income distribution, government policy changes, and seasonal changes. If the size of the population increases then the demand for goods and services will also increase as more products and services are demanded, so the demand curves will shift to the right. The changes in the age structure of the population can alter the economy and affect the demand for certain products, for example if the percentage of babies start to increase, then there will be more dippers or baby toys and the demand for those products will increase, as well as the demand for skateboards will decrease and the demand curve will shift to the left. When there is a change in income distribution, for example when poor get economically better and the rich get into an economic crisis, the demand curve for sugar can shift to the right because there is an increase for basic necessity goods. Government policy changes such as banning smoking in public places affect some markets. Seasonal changes can increase the demand of a product, for example, in winter the demand for coats increase and the demand for swimsuits decrease.

2.    The demand for bicycles might increase because of changes in the age structure of the population and government policy changes.

If the percentage increase of kids in an economy, the demand for bicycles will increase for Christmas and in normal dates too, as kids may ask for a bicycle for their birthdays or for Christmas. Therefore more bicycles are demanded and the price decreases.

Since there is a percentage increase of kids in an economy, the demand for walking frames may start to decrease and shift to the left in a demand curve. The quantity demanded decreases and the price increases.

If a government creates a policy saying that the price for ‘school bus services’ are going to increase, parents might send their child with a bicycle instead of paying more than they used to pay for the school bus. Therefore the quantity for bicycles increases and the people taking the school bus decreases because the price increased.

Free Market Economies V Planned Economies

A planned economy is also called a central planned economy or a command economy. This system is based by decisions such as what to produce, how to produce it and who to produce for. All this decisions are made by a central body and in this system the central body is the government. The government sets up everything, they decide the wages and decide the prices through central planning. The government decides for the people and for their best interests. The decisions they have to make are numerous and that makes planning very difficult. It is almost impossible to accomplish a satisfactory level of efficiency, if someone adds the need to forecast future events. A planned economy has many advantages like competition is avoided, they concentrate more in life such as in hospitals, education, there is low percentage of unemployment, prices are normally kept under control and affordable for people, and there is less inequality of resources.

A free market economy, also called a private enterprise economy or capitalism use prices to portion goods and services. Every single production is managed by a private company, there is no government intervention. The companies set wages and prices in the economy. Companies make independent decision of what to buy at given prices and producers decide if they want to buy those products. Producers’ decisions are changed if the form of demand is altered because then there will be changes in the amount of supply. When consumers and producers work for their own interest, the market works to give the best outcome for both, consumers and producers. Many of the advantages of a free market economy is that there is little government intervention, prices are set up based on how much the population can afford, unlike a planned economy the population can buy or reject goods freely, demands for a product or service create more jobs for people, people are motivated to improve their lives economically as there is no government limiting of what they can gain. A free market economy can easily control if there is too much demand of a supply as companies can change what they produce instead of going through the government first, there are many varieties of goods and services and it encourages competition. However many of the disadvantages of this type of economy makes us doubt on it. Companies can fail in providing goods or services, some companies offer more goods and services to people who are economically better than others, some members of society will not be able to work and therefore will not be able to earn and since there is no government intervention, they get no help.

I believe a free market economy is the best option for people. It is complicated for a planned economy to control the total production, investment trade and consumption therefore there will be misallocation of resources and shortages. The government is the one that makes the decision and these can lead to a loss of freedom of choice. Some governments may not share the same ideas as the majority of the population and since they have absolute power they can apply plans that may not convince the population. Workers and managers do not gain profits and are difficult to motivate. 





Information extracted from:
IB economic text book
http://en.wikibooks.org/wiki/IB_Economics/Introduction_to_Economics/Free_Market_vs_Planned_Economy