Macro and Microeconomics - Essay Example

Macro and Microeconomics By Question The main functions of prices in a modern competitive market economy The market for goods and services cannot function efficiently without the role of price mechanism. The prices of goods, as well as that of services, are influenced by the forces in a free market. Therefore, the price of commodities is determined at a point where the demand curve meets the supply curve. Once the price of the commodity is determined the buyer and the seller are all satisfied to trade and exchange goods for money. The free market economy is based on the price mechanism because it fairly and efficiently set the price appropriately. One of the functions of price in a competitive market is that it allocates the scarce resources available optimally (Mukhopadhyay 1). Scarce resources are one of the problems that economist deal with to ensure that it equally and help a majority in the economy. Price mechanism; therefore, solve the problem of allocating scarce resources by ensuring they are allocated through competition in a free market. Moreover, price mechanism helps industries to produce efficient product that of high quality. The competition between firms ensures that the most efficient remain in the market while its edges others that are inefficient out of the market (Moon 2013). Efficient firms produce quality goods at a cheaper price compared to the inefficient ones. The high cost of production makes inefficient industries set price that will cover the cost of production and thus they price at a higher price than efficient firms. The high priced goods become uncompetitive in a free market and draw the firm out of business (Mukhopadhyay 2). Price also serves the function of discounting to determine the cost as well as the amount or size of a commodity. However, price comprises the joint charge of goods and the profit attached to it. Therefore, price serves to determine the amount to be produced and the effectiveness to it. Price, therefore, serves as a planning tool to making economic decision as to where the economy is to be taken (The fundamentals of market economy self regulation). Price also stimulates firms and industries into production process due to high profit guaranteed when a firm is involved in large scale production. Lastly, price help in the distribution of income and resources to the most efficient industries in the market. It is through price that the government budget for it functions to provide services and development to steer economic growth (Moon 2013). Question 2 a) An increase or decrease in the demand or supply of a product or service The increase in demand is the increase of quantity of goods or services that consumers need for consumption. For example, if households were used to consume bread in a day, but over sudden they start consuming two or more bread per day this situation is what is referred to an increase in the demand for bread. However, decrease in consumption of bread from one to half, the reduction is said to be a decrease in the demand of bread (Sloman 2012). The supply of goods refers to the productions and transportation of commodities to the availability of consumers in the market. An increase in the supply is the production and delivery of more goods or services than what is required by consumers. On the other hand, a decrease in supply is production of fewer goods by firms and delivery of goods or services less than what is needed by consumers in the market. The changes of the demand and supply determine the prices of goods or services at any given time (Sloman 2012). High demand results to increased prices of goods and services while low demand create surplus and reduces prices of commodities. The changes of demand and supply through the price mechanism raises or decreases the prices of commodity in the short run, but the prices stabilized in the long run to the equilibrium position. b) An extension or contraction in the demand or supply of a product or service An extension in the demand comes as a result of the fall in prices of a commodity. Therefore, an increase in demand as a result of a decrease in the cost of the commodity is what is referred to as an extension of demand. On the other hand, a contraction of demand is a decrease in the quantity needed by consumers as the prices of goods and services increases. Extension and construction of demand comes as a result of changes in the prices of commodities in the market while other factors remain constant. Extension and construction also apply to supply of commodities, as well. The increase of commodities in the market as a result of price increase is known as an extension of supply while decrease of commodities in the market due to reduced prices is referred to as a construction of supply. Both construction and extension of supply have to happen when all other factors remain constant while price is allowed to change. Question 3 The market for Enrolments on Full Time University Degree Courses a) A rise in the wages paid to lecturers delivering Degree Courses A rise in wages paid to lecturers has an immediate effect of increasing the cost of learning for full time degree courses. However, the quality of learning is presumed to increase when lecturer are well remunerated. In the case of the effect on the demand and supply of the educations services, an increase in wage will increase the cost paid by student and thus minimum student would enrol for degree programs. b) An increase in wage increases the costs of the degree from p1 to p2, and this has a contraction effect of the demand for degree in the short run. Moreover, increase in wages will attract more university lecturer to the United Kingdom to take advantage of better remuneration over other places in the world. Therefore, the Universities in the United Kingdom would have the best lecturer and this would guarantee that quality degree programs would be acquired once a student is enrolled in the United Kingdom. However, this would be a long time effect and would increase the demand for degree courses. Increase in wages results to the movement along the demand curve, but the long run changes as a result of increased quality of programs shift the demand curve to the right from D to D1 thereby increasing the number of student demanding degree courses. Therefore, increase in wages for lecturer has a short run and long run effect on the demand curve. c) A reduction in the incomes of students The market for degree courses is set to affect by decrease in the income of the student. One of the factors that enable people to seek higher education is the availability of income to pay for the upkeep and also the fees charges by the institution of learning. Therefore, a reduction in the income of the student would decrease the quantity demanded university courses as demonstrated in the diagram. A reduction in the student income makes the demand curve shift from D1 to D2 decreasing the quantity demanded from Q1 to Q2. The market equilibrium thus moves fromP1, O1 to P2, Q2. d) Promise of better wages as a result of achieving an Honours degree in the United Kingdom Publication of research detailing the benefit of pursuing a degree has l have an ultimate guarantee of a better career increases the demand and supply for degree courses. This is because people will be looking forward to having a career that will pay better salaries and live in a higher standard of living. The demand curve would move to the right and increase the cost of degree program in the short run. However, in the long run a new equilibrium will be established at price P1, but at quantity Q3. e) Effects of Student entering direct apprenticeships and training schemes at companies The demand for other training rather than degree courses at the University has a direct effect of reducing the demand for in the market for degree program. Training scheme and apprenticeships offer competition and fewer people will be willing to study a degree while they can get direct apprenticeships that would lead to job employment. The result of competition is the reduction of demand which has the ultimate effect of reducing the costs of degree programs. The competition between training schemes and apprenticeship for degree courses shift the demand curve from D1 to D2 making the costs of degree program to decrease from P1 to P2 in the short run. However, the long run effect of competition will shift the supply curve to the left. More people will be demanding degree courses when their cost decreases and thus the demand increases in the long run. f) Effect of an increase in the population as a result of rising birth rates and greater Immigration Increase in population and greater immigration in to the United Kingdom increases the demand for degree program courses. Population’s increases, people want more from the economy to enable them provide for the families and cater for all the bills. Therefore, given that the ways to a better job is through training, degree programs become a priority for people who can afford to ensure that once they complete the studying they will secure a good paying job. Moreover, the expansion of the market size for degree courses moves the demand curve outward. Educations being a necessity in the modern world make it competitively over other mode of training. Increase in people migrating to UK increases the population of the country and increases the market size of University courses. This has a resultant effect of shifting the demand curve from D1 to D2 at equilibrium level P2, Q2 (Laker 2014). In conclusion, the free market economy helps to solve the economic problem of allocating limited resources to the best and productive sectors of the economy. It functions both to the goods market as well as the services industries such as universities, hospitals and other professional services. It is the forces of supply and demand that help in setting up the price of goods and services (Sloman 2012). A movement along the demand curve or supply curve is caused by changes in the price of a commodity while a shift in demand or supply is as a result of other factor others than prices changes. References Laker, K 2014, Principles of Microeconomics, PowerPoint Presentation. Moon, M 2013, Demand and Supply Integration ; The Key to World-Class Demand ForeCasting. New Jersey, Pearson Education, Inc. Mukhopadhyay, J 2011, Competition in Markets Promotes Economic Efficiency, retrieved 17th March 2014, < http://www.cci.gov.in/May2011/Advocacy/essay2012/jyoti.pdf>. Sloman, J, Wride, A & Garratt, D 2012, Essentials of Economics, Edinburgh Gate, Pearson Education Limited. The fundamentals of market economy self regulation, retrieved 17 March 2014, < http://softacademy.lnpu.edu.ua/Programs/Theory_of_Economics/5.html>. Read More