2nd Bac - Employment in the Market

 The market supply and demand functions for a given good are:

 

You are asked to:
1. Calculate the equilibrium price and quantity.
2. Explain what would happen if P = 170, and if P = 110.
3. Make the graphical representation of the two previous questions.Remembering that we must always indicate
clearly:
- The titles of the axes
- Equilibrium price
- Excess demand and excess supply
- Legend
- The scales must be well proportioned and have to be in relation to the data in the table.
data in the table.

 

Employment in the market

The employment level of the country is a piece of information the entrepreneur should be aware of. When in the economy of a country the level of unemployment goes up, the income of the people as a result go down and the capacity to buy go down as well. This affects directly or indirectly to the sales of businesses. 

When in a country, there is a high number of people who have a safe and stable job, it is an indicator of a healthy situation of the local economy. 

 

Prices

Another aspect to be considered by the entrepreneur is to know about the general prices of goods and services. These have an established price, which changes all the time. For example: the price of cars go down, the price of properties go up, the price of food can go up or down. The price can determine the quantity of goods or services a person can acquire depending on their income. The price also indicates the profit the entrepreneur can receive from the sale of goods and services.

 

Inflation and Deflation

 

Inflation is the rate at which the prices for goods and services increase. Inflation often affects the buying capacity of consumers. Most Central banks try to limit inflation in order to keep their respective economies functioning efficiently.

 

Inflation is caused by multiple factors, here are a few: 

1. Money Supply: Excess currency (money) supply in an economy is one of the primary causes of inflation. This happens when the money supply/circulation in a nation grows above the economic growth, therefore reducing the value of the currency.

In the modern era, countries have shifted from the traditional methods of valuing money with the amount of gold they possessed. Modern methods of money valuation are determined by the amount of currency that is in circulation which is then followed by the public’s perception of the value of that currency.

2. National Debt: There are a number of factors that influence national debt, which include the nations borrowing and spending. In a situation where a country’s debt increases, the respective country is left with two options: 

- Taxes can be raised internally

- Additional money can be printed to pay off the debt

3. Demand-Pull Effect: The demand-pull effect states that in a growing economy as wages increase within an economy, people will have more money to spend on goods and services. The increase in demand for goods and services will result in companies to raise prices that consumers will bear in order to balance supply and demand.

4. Cost-Push Effect: This theory states that when companies face increased input costs on raw materials and wages for manufacturing consumer goods, they will preserve their profitability by passing the increased production cost to the end consumer in the form of increased prices.

5. Exchange Rates: An economy with exposure to foreign markets mostly functions on the basis of the dollar value. In a trading global economy, exchange rates play an important factor in determining the rate of inflation.

 

Deflation is generally the decline in the prices for goods and services that occur when the rate of inflation falls below 0%. Deflation will take place naturally, if and when the money supply of an economy is limited. Deflation in an economy indicates deteriorating conditions. Deflation is normally linked with significant unemployment and low productivity levels of good and services. The term “Deflation” is often mistaken with “disinflation.” While deflation refers to a decrease in the prices of goods and services in an economy, disinflation is when inflation increases at a slower rate.

 

Deflation can be caused by multiple factors:

1. Structural changes in capital markets: When different companies selling similar goods or services compete, there is a tendency to lower prices to have an edge over the competition.

2. Increased productivity: Innovation and technology enable increased production efficiency which leads to lower prices of goods and services. Some innovations affect the productivity of certain industries and impact the entire economy.

3. Decrease in supply of currency: The decrease in the supply of currency will decrease the prices of goods and services to make it affordable to people.