Describe how the law of supply and
demand works. Use at least one example in your answer.
The law of supply and demand has an
indirect relationship. They set the prices in the market. To explain how this
whole thing works, lets take a certain good for a example. When this good
becomes somehow affordable and popular, many consumers buy it and the demand for that product increases.
However when the supply of the product can't catch up with the demand, shortage occurs and this
increases the price of the product. On the other hand, when there is more
supply of that good, but the there isn't much
demand for that good in the market, the price of the good decreases.
This is the law of supply and demand. When there is supply but not much demand
prices fall, but if there is more demand than supply prices increase.
Define optimal efficiency. How is
optimal efficiency achieved in production?
It is the state of minimizing waste and making the best of the
resources you have. It is the ratio of benefit and cost. It is achieved by
reaching the optimal ratio between the cost of allocating resources and the benefit
gained at the end.
Give one example of a fungible good
and one example of a non-fungible good. What is the difference between these
two types of goods, and why is it important?
One fungible good is petroleum. A non-fungible good can be clothes or shoes.
The main difference is that fungible goods don't make much a difference from
where you buy them and are the same for everyone. Non-fungible goods on the
other hand are different for different consumers. For clothes and shoes for
example, people have different sizes so it isn't the same for everyone and a
cloth that fitted one customer might not fit another one. The different is
important because for fungible products consumers can get them anywhere, they
can change shops or gas stations and still get the same product. This poses
great challenge for producers that produce fungible products because there is
great competition in that sector. They have to overcome the other competitors
and create a brand for their product in order to survive.
Define bargaining power. Explain the
differences in bargaining power that employers have with union workers versus
Bargaining power is different when a
single employee does it and when a union of employees do it. Unions have much
greater power and high chances of succeeding. The reason is because when a
single employee bargains with his/ her employer, he/she doesn't create much
problem for the employer because the employer can just replace that worker with
another one that could agree to his terms and conditions. But if the workers
all group up, they become a problem for
their employer as it is difficult
for the employer to just fire them all and bring in a new stuff and train them
all over again. Therefore as a union the workers have equal power as their
employer and can bargain suitable conditions more effectively.
Explain why the housing market follows
an up-and-down cycle.
The house market follows the law of
supply and demand therefore it has an up and down cycle. Since buying a house
is a long term investment , many people are reluctant to buy houses. Some might
be better off with just renting the house
while some like to own a house
and this determines the demand in the market. The demand is also
determined by mortgage interest rates and the standard of living. If there are
more people with families that earn well they would prefer to own a house
rather than rent. This, along with low interest rates, increases the demand of
houses in a place. As demand increases, usually the supply decreases because
house take more time and resource to be produce than other goods in the market. Therefore prices
increase and a seller market is created. when
prices and the mortgage rates increase, houses become expensive for many and the demand decreases. With
decreasing demand and more houses supplied, the housing market starts
suffering. At this time investors and house owners are at loss because houses
begin to sell at lower than normal prices and a buyer's market is created. When
prices decrease again demand grows and the process starts all over again.
Why does relative scarcity determine
the level of prices in a free-market system?
Because people tend to pay more for
something that isn't easily found in the market. If there is relative scarcity
then that means there is high demand for that product, and high price as well. If we compare that to another
good that isn't scarce at all the difference is big because the price of the
supplied product will be much less than the scarce one.