China and Demand Variation - Essay Example

? China and Demand Variation China and Demand Variation Outline: PART The likely effects of increases in demand for iron-ore on iron-ore prices, iron-ore production and the demand and ‘price’ of inputs used in the production of this commodity, including labor. (Remember to take account of the potential for input substitution). PART 2 The effect of changes in wage rates in the mining sector on the supply of workers to mining and other industries; and the importance of employees’ preferences for living in the city locations because of the wage rates and other characteristics in jobs of the mining sector. Introducing Demand Think of demand as ones willingness to go out and buy a fixed product. For instance, the market demand is the sum of what everybody in market wants. A business often spends tons of amounts of money in order to find out the amount of demand that the public has for its final products and services. Incorrect estimations might either result in money left on in banks unutilized if it’s underestimated or forms of losses if it’s overestimated.(Investopedia) The amount of a particular economic product or service that an enjoyer or group of enjoyers will want to purchase at a certain price. The demand curve is generally downward sloping, since enjoyers will want to purchase more as price decreases. Demand for a products or services is determined by several different factors other than just price, such as the price of complementary goods and substitute goods. In extreme cases, demand might completely be unrelated to price, or infinite at a given price. Moreover, supply and demand are one of the two major determinants of the market price. (Investor words) Examine: PART 1 The likely effects of increases in demand for iron-ore on iron-ore prices, iron-ore production and the demand and ‘price’ of inputs used in the production of this commodity, including labor. (Remember to take account of the potential for input substitution). The likely effects of an increase in demand for iron-ore: The rising growth of the Chinese economy has caused the increasing of demand for the minerals along with the metals that are located in Western Australia. The net effect of this is the demand rising for the product of Iron-ore, deriving an increase in demand for the production lines and also the resulting output. The likely effects of demand increases on Iron-ore prices: Price can be seen as the interaction between the supply and the demand quantity as can be seen in the Figure below. The resultant market price would therefore depend upon such interaction at a specific quantity. The transaction can be done when so ever the goods or services are agreed to be bought at the market price. When transaction occurs at this price the resulting output is the equilibrium or the market clearing price as show below. As the Chinese population continues to grow so does the demand for the minerals and metals, this has not only cause the rise of Iron-ore production but also of any other inputs products used in its formation in short the supply of iron-ore increases with the increasing demand of iron-ore. We can see this in diagram below that represents a rise in the demand of iron-ore. Figure 1 an increase in demand (P.S. the word Beer can be replace by any product) The diagram notifies the increase in demand for iron-ore has increased the quantity of its production moreover there is rise in price from p1 to p2. Thus, as the quantity raises so does the demand, this is the resulting effect. The likely effect of increase on Iron-ore production To meet the ever increasing demand of iron-ore in the market the production of its input supplies would even have to increase. Suppliers only increase the product supply where there is less marginal cost of production. Therefore, we see that there is an increase in supply as shown by the diagram below. Therefore, we can notice that any increase in demand would of course raise the supply, the price and the quantity of that product. To absorb the clear effects, study the diagram below. Figure 2 an increase in supply The likely effects of increase on demand &price of inputs production The suppliers want to move and make changes with the market. This is the only way they could benefit, with an increasing demand of iron ore there has to be a retrospective increase in its input production this covers, labor, material and also the overheads. The demand of therefore input products used to produce the final output would also increase. The price of the input product used in production would also increase considering the change in demand curve as seen in figure (of such demand and price curve). Figure above clearly shows increase in demand of input forces price increases of that relevant product. The likely effects of demand increase on demand of labor: Labor can be taken as derive demand as it does not occur itself rather from the change in final product or its input production there is a change in demand of labor. The demand for an increase amount of labor would depend on the Marginal Revenue Product and also the marginal cost of the worker. Firms would require the additional labors and such would be continually employed till the point the supplier is at no gain and no loss position i.e. where MRP=MC. PART 2 The effect of changes in wage rates in the mining sector on the supply of workers to mining and other industries; and the importance of employees’ preferences for living in the city locations because of the wage rates and other characteristics in jobs of the mining sector. The likely effect of changes in wage rates on supply of workers to mining and other industries Wages can be determined easily in the homogeneous market by interaction of supply and demand of labor. If we clearly sight the difference between the labor movements we grasp that it is because of changes in their wage rate, that is if the wages increase the labor supply curve for any organization will be an upward sloping curve. These just puts the wage rise that would motivate the other workers entering the mining industry attracted by the higher pay, rewards and incentives. They might be not having any employment held previously or they might move from other industries such as the unemployed workers or housewives. But one should remember that the extent to which such rise in the prevailing pay in an iron ore employment leads to an increase in supply of labor depending on the elasticity of labor supply. The potential for input substitution The supply curve for an individual cannot continue to just slope upwards indefinitely. Labor market theory suggests that it will in the beginning slope upwards and then bend a bit backwards. Up to a wage rate of around W1, the relative price of leisure keeps on increasing, and workers will seek to switch from leisure to work instead. In other words we see a strong substitution effect as wages start to rise. Therefore, the supply curve slopes upwards to point L. Worker’s Preference Notion of Worker’s Preference The notion of preference has a vital role in many of the disciplines, covering moral philosophy and also decision theory. Preferences and their properties of logic also have a vital role in the rational choice theory, a subject that in turn permeates the modern economics, as well as the other branches of formal social science. The notion of this preference and the way it is analyzed vary between these disciplines. The treatment that is yet lacking is the one that takes into account the requirement of all usages and tries to gather them in some unified approach. This entry surveys the most vital philosophical use of the preference concept and deeply looking into their compatibilities and conflicts. Preference for Work An increase number of people’s preference for work would shift the supply curve to the right side, and increase the employment from(Q to Q10) but however it would also reduce the wage rate from(W to W1). This is shown in the Figure below:   Worker’s Preference - living in city It is vital that pay is motivating enough for workers movement to different city. Workers are very much motivated to take advantage of any salary or pay rises. How the use of MRP can Increase Mobility? The main idea of supply side curve is to increase the MRP of labour, therefore move the demand curve to right effect in higher employment at current wage level. Policy against includes: As seen with this increase of MRP to MRP1 the wage has risen naturally to W1 and the quantity employed even increased to Q1. To increase the MRP of people are retrained that would make them more skilful and thus mobile (Western Australia would benefit). This is even the justification for any expensive training schemes. Worker’s preference - wage rates This is very important factor for motivating workers and influences their wage rates. However, at times in a competitive market the pay is usually market taken and therefore non-negotiable. Neither any factors of demand and supply curve affects the wage rate, hence both parties need to agree at a competitive pay rate. Worker’s preference - features in jobs of mining sector A preference that attributes to workers at work places varies from self-preferences off work. The characteristic of job preferences are supervision, retirement benefits, morning and late hours, job security, and easier type of work, the company, the wage rate, good and helpful co-workers, job advancement, and favorable working conditions. Women might not very much interested in working in a mining industry due to factors such as poor job security, unfavorable working conditions, difficulty of work and late hours at mining that might not be of their preference. Work Cited 1. Demand(2011), Dictionary from http://www.investorwords.com/1396/demand.html#ixzz1MPsXqS3y 2. Demand curve shifts http://academickids.com/encyclopedia/index.php/Supply_and_demand 3. Economic Online, http://www.economicsonline.co.uk/Competitive_markets/The_labour_market.html 4. Preference from http://plato.stanford.edu/entries/preferences/ 5. perfect competition in labor market from http://www.thestudentroom.co.uk/showthread.php?t=1116499 6. Resources (or Factors of Production) Are Scarce from http://www.henrygeorge.org/pdfs/decons.pdf 7. R. Nair (2009) Using demand, supply and cost theory to understand how markets operate. from http://www.mrnair.com/?p=318 8. Supply of labor from http://tutor2u.net/economics/revision-notes/a2-micro-supply-of-labour.html Read More