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application of supply and demand analysis (Why is agriculture an unstable…
application of supply and demand analysis
Why is agriculture an unstable market?
Agriculture is and unstable market because prices fluctuate from year to year due climatic factors this leads to large ranges of prices making it uncertain for producer and consumers
Long-run downward trend are shown by shifts on the demand and supply curves.
Short run fluctuations in agricultural prices are caused by fluctuations in the harvest these are factors out of the farmers control.
Commodity markets
Many organisations that buy and sell commodities have no intention of using the raw materials. For example they may by a bulk of copper because it has been speculated that the price is going to go up,then they can sell it later for a higher price, for example if supply has fallen.
Speculative demand is important in other markets such as the metal industry due to the time it takes to open an new mine and begin extracting the required metal by which time the demand may have changed
Global commodity prices move in cycles that last around 20-30 years. Between 1980 and 2000 there was a declining price trend in the year 2000 is started to reverse. There was a boom between 2004 and 2008 due to declining supply and increasing demand.
Markets for second hand cars
Prices of second hand cars
During a time of recession people are more likely to keep there cars for longer therefore reducing the number of second hand cars available and pushing up the price.
The price of secondhand cars depends on the economic situation during a time of boom there is high demand for new cars meaning that there is a constant supply of second hand cars meaning that there value will be relativity low.
Cars are a durable consumer good that have a life time of about 15 years, however they unlike houses depreciate in value this means that the prices of most second hand cars fall as they get older.
Akerlof's split market
Cars that are lemons, are cars that have significant defects
The seller knows that the car has got defects
The buyer doesn't know if the car has any defects meaning they don't want to pay too much on it encase it is a lemon.
Cars of a high quality don't have any significant defects
The seller knows that the car hasn't got any defects so they want a higher price
The buyer doesn't know if the car has any defects so they still don't want to pay too much as it a high risk.
The housing market
Both supply and demand of houses has dramatically increase in the past few years however the demand has risen much quicker than the supply.
Demand has increased because of the increase of the population.
Supply has increased because the number of houses being added to the market is larger than the number that are being demolished or converted for other uses. The supply of houses for occupancy rises the fastest when landlords withdraw from the rental market and sell privately. However the current market favors private letting which is seen as an inferior substitute to owner occupancy
In the short run the supply of housing is inelastic
The value of housing stays high and usually increase because the house and the land don't run out break easily causing them to maintain there value.
Health care markets
Health care should be provided though the market
Consumers can show choice and preference meaning that the service providers can tailor make the services to met the market demands
It gives more of an intensive for people to innovate can make the process for efficient or cost effective and improving the economy
Health care shouldn't be provided though the market
It can cause people to not get access to the care they need because they can't afford it.
Health care is a merit good meaning that when person A receives treatment person B benefits for example in the case of infectious diseases.