Market Forces: Demand and Supply
Question 1: Explain, in your own words and using the concepts from the course, what Sam and Jane discussed.
The Wall Street Journal states that three major chip makers in South Korea had chosen to cut down production. This reduction in output will increase the price of chips in the market and thus will increase the cost of making PCs. An increment in the cost of making PCs will bring about an ascent of the expenses. Due to rising in price, the demand for Clones will fall. This prompts a decline in order and no necessity for more workforce for PC Solutions. Therefore, Sam and Jane, director of personnel in the firm, discussed not to increase the workforce for the time being until further notice.
Question 2
- What is market equilibrium? Does the market always reach equilibrium? Explain
At the point when supply and demand curves meet, the market is in equilibrium. This is where the quantity demanded, and the amount supplied is equal. Yes, markets very often reach equilibrium. However, due to non-price factors, such as government policies, political instability and cost of production, equilibrium may not be reached, in a market, there are both buyer and seller are present. These two players are consistently monitoring prices. Purchasers require lower costs and venders go at higher rates. Both of them in this activity, arrive at a point where the purchasers and venders’ price and quantity correspond with one another. In such a circumstance, we call it market equilibrium.
Below is a diagram that explains market equilibrium. We can see that the demand and supply curves are crossing each other at a point where the amount demanded and supplied are equivalent to a similar cost. The equilibrium is arrived at a quantity of 100 units and a price of 15.
- If there is a surplus of houses in the market, then the price of houses will rise. True or false. Explain and offer an example.
False. A surplus of houses in the market implies that the supply is high, yet demand has not increased. If supply increases which are the houses, but demand which are the individuals do not buy them as in this situation, the price of houses will decline. The increase the quantity supplied will compel the house owners to reduce their costs with the goal that the demand may increase, and the excess units could be sold in the market. This will shift the supply curve downward to the right, as illustrated in the diagram below.
A good example would be if farmers had a bumper harvest of rice, there would be a surplus in the market, but the demand for rice has not increased. Due to an increase in quantity supplied, farmers will be forced to reduce rice prices for demand to increase and excess rice to be sold.