How the Equilibrium Price and Equilibrium Quantity Can Be Reached - Assignment Example

Economic Paper a). When the population of persons aged 18-20 increase an increase in number of people demanding higher education will also increase. In this case, education is the quantity demanded by the population (Lawrence, 2006:6). Individual demand for education would affect the population demand because the individual form part of the population. Decrease in population will influence the number of individuals demanding higher education leading to decrease in demand. Social economic status influences demand for higher education (Heller, 2011:124). For instance during economic depression in 1930, institutions of higher learning experienced a decrease in demand for places in this institution. It is arguable that personal income would influence the demand. After the depression, demand for higher education increased because many people could afford higher education expenses. Demand in labor market has a direct influence on number of people who demand higher education. For instance, an increase in demand for professional in the labor market leads to an increase in demand for higher education and vice versa. Human capital theory argues that economic benefit, which an individual gets from acquiring higher education, would influence the population demanding education (Heller, 2011:98). When perceived benefit decreases, demand for higher education will decrease. State of technology is a factor that increase demand for higher education. Introduction of new technology in the market lead to introduction of new courses in higher institutions. For instance, the introduction of Computer Engineering led to an increase in enrollment level (Heller, 2011:98). Conversely, the changing state of technology may reduce demand for higher education because technology replaces human labor. This makes acquisition for education less beneficial to individuals. For example, introduction of robots in reduced the number of people working in various companies. This reduction influenced demand for higher education by increasing by increasing the demand because many people felt that higher education could lead to better job placement. Student individual choices or needs would influence demand for education (Lawrence, 2006:6). When students develop negative attitude demand for higher education will reduce. On the other hand, a positive attitude towards higher education by students would lead to an increase in demand for higher education. Policies guiding higher education system are likely to influence demand for higher education. When policies guiding tuition fee and benefits in colleges become conducive to many people demand for higher education will increase. The reverse in policies will decrease demand for higher education. For instance, a selection criterion is likely to decrease or increase the number of students demanding for spaces for higher education. Environmental factors influence demand for higher education (Mankiw, 2011:76). For instance, many Universities in United States have increased international enrollment because of high demand from international students. It is arguable that conducive environment will lead to increase in demand or vice versa. Another factor that influence demand for education is political conditions of the country. Political upheavals lead to exodus of people leading to a decrease in demand for education. For instance, many students who flee their countries during war decrease the demand for higher education in their countries. b). Explain how the equilibrium price and equilibrium quantity can be reached. Equilibrium price refers to state where demand quantity is the same as the supplied quantity. In the demand curve, this quantity occurs where the supply curve and the demand curve meet (Sexton, 2010:122). Sometimes the prices of products supplied in the market are above the equilibrium price or below the equilibrium price. A surplus supply of product in the market will exceed the quantity of product demanded. When this occurs, sellers take the initiative of lowering the prices of products to equilibrium level. Largely, a reduction in price at this point will influence the demand price of the product, thus setting the market at the equilibrium price. Conversely, when a price of a product appears below the equilibrium price, it would be probable that demand for the product has exceeded the supply for the product. In this case, the market will experience a shortage of quantity supplied. Sellers take the opportunity of disequilibrium to raise the prices of the product thus stabilizing the market (Mankiw, 2011:77). It evident that an increase in price of product when there is high demand and less supply, would lead to fall in demand which would subsequently lead to equilibrium price. In many cases, the market players balance the market price using equilibrium principle. Equilibrium quantity refers product supplied or demanded at equilibrium price (Mankiw, 2011:77). It is apparent from the definition that forces responsible for balancing prices of products in the market would influence equilibrium quantity. Forces of demand influence the demand quantity by raising the quantity or by lowering the quantity. An increase in demand of a product with a steady supply or a decrease in supply would lead to disequilibrium prices, which will in turn influence the equilibrium quantity. To achieve the equilibrium quantity sellers will increase prices or reduce prices of their product depending on market disequilibrium thus arriving at the equilibrium quantity (Sexton, 2010:122). c). Discuss the reasons why a high rate of inflation is undesirable. Economists argue that inflation has some benefiting effects and undesirable effects to development of the economy (Linzer & Linzer, 2008:6). The purchasing power of an individual depends on the amount of money that an individual is able to acquire with a certain period. Inflation disrupts balance payment in the international market. When prices of products in the domestic market rise at a higher rate than prices of products in the foreign market, unbalanced payment occurs. This leads to a decline in export quantity which influence exchange rate of the local currency. The purchasing power of that country would subsequently fall. Higher inflation rate leads to a decline in asset development (Linzer & Linzer, 2008:8). When inflation bites many people shift there purchasing power thus resorting to buying essential goods. Low income-earners are unable to embark on assert development when inflation increases to bite. This process leads to a decline in country’s growth. Creditors and financial institutions which lend money to the public lose the value for their money when rate of inflation increase. Debtors would repay the same amount of interest to these institutions yet the value shall have changed. This would be gainful to debtors while harmful to the creditors. Inflation reduces the value for retirement benefits (Linzer & Linzer, 2008:6). Countries with security plans offer retirement benefits, which they calculate, based on the financial trends in those countries. In an event of inflation, no adjustment caters for the retirement benefits. This in turn influences retirement plans or the purchasing power of the retirement benefits. The urban poor face very difficult time when inflation bites because they can no longer purchase the amount of goods or acquire same services they use to acquire before the inflation. During high inflation, tax holiday offered to corporate investments does not cushion their operating expenses (Khan & Semlali, 2000:18). This will influence priorities of the investor which may include reduction of workers, reduction of operating expenses among others measures to curb inflation. However, failure to adjust operating expenses and tax holiday may lead to loses or closure of the corporation. This effect is undesirable because it leads to decline in investment opportunity. It is apparent that many investors will close their investment and move to other countries. High inflation leads to a loss of currency value in the affected country (Khan & Semlali, 2000:8). Inflation has a negative impact to the international market. Assertively, when inflation rate is high, the chances of increased high exchange rates are also high. When this happens, the foreign currency benefits as the domestic currency suffers from the effect. This is dangerous because the country might not be able to support its budget leading to unbalanced payment. Further, the country experiencing inflation may be unable to compete at the international market because many countries will not be willing to import products whose products are inflated. Higher inflation reduces profit margin in the domestic market (Khan & Semlali, 2000:17). This might lead to an increase in prices of common goods. Domestic companies might not be able to make any meaningful gain in their operations during high inflation. For instance, a local manufacturing company would buy raw material at inflated prices leading to a reduction in profit margin. Consequently, it might lead to economic revolt or political instability if the country does not take measures to control it. Stability of the nation depends on the economic trends. It is arguable that when economic status of a country sour, many people become dissatisfied by the political system which might probably lead to political unrest. Work cited Heller, E. Donald. The States and Public Higher Education Policy: Affordability, Access, and Accountability. Maryland: JHU Press. 2011. Print. Khan, S. Mohsin & Semlali, A. Senhadji. Threshold Effects in the Relationship Between Inflation and Growth. Washington, DC: International Monetary Fund. 2000. Print. Lawrence, L. Francis. Leadership in higher education: views from the presidency. New Jersey: Transaction Publishers. 2006. Print. Linzer, S. Richard & Linzer, O. Anna. Cash Flow Strategies: Innovation in Nonprofit Financial Management. New Jersey: John Wiley and Sons. 2008. Print. Mankiw, N. Gregory. Principles of Economics. New York: Cengage Learning. 2011. Print. Sexton, L. Robert. Exploring Microeconomics. New York: Cengage Learning, 2010. Print. Read More