Question

Q1) Define supply and demand. List their determinants.

Q2) What is the equilibrium price and quantity in this market? If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium? If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?

Q3) What is likely to happen to the quantity supplied of a particular cut of meat when its price rises? Express your answer as a general hypothesis of the relationship between the price and the quantity supplied of any commodity.

Q4) Distinguish between the short-run rationing function and the long-run guiding function of the price.

Answer 1

Q 1. Demand refers to the consumers' desire to purchase goods and services and their readiness to pay for the prices incurred for the goods and services on order. Supply expounds on the total amount of goods and services availed to market for purchase by potential consumers.

The determinants of supply and demand are producer expectations, prices of the goods and services, number of sellers in the market, taste, preferences, levels of income of consumers, and availability of substitute goods.

Q2. The equilibrium price is the price imposed on goods and services in the market where the quantity of commodities equals the number of goods demanded by potential consumers. Equilibrium is determined by the intersection of demand and supply curves. However, a supply exists if the quantity of goods and services supplied exceeds the amount demanded by potential consumers. The surplus results in downward pressure on the prices of goods and services supplied to the market (Blaug & Mark, 2010). In instances where the prices are above the equilibrium, the outcome may be managed by supplying more of the demanded goods and services, facilitating equilibrium. If the prices are below equilibrium, this may be controlled by reducing the quantity of the goods provided to the market, thus alleviating equilibrium by equalizing commodities supplied with the demand in the market.

Q3. When the prices of a particular cut of meat rise, the demand by the potential consumers drastically decreases. The meat supply is expected to be surplus in the market, which may reciprocate to future prices to attract customers. However, the quantity supplied may be similar, but the demand will be lower, destabilizing the equilibrium encountered through demand and supply.

Q4. Rationing is the approach adopted in controlling the distribution of scarce services and goods. In the long run, the higher prices of the commodities entice firms to enter the product market, predicted to result in huge profits compared to the demand for items and services by potential consumers (Diduch & Amy, 2021). Therefore, the resources supplied will be reallocated in the economy through the guiding function by establishing prices and establishing a new equilibrium. However, the rationing function will result in the short-run stability of the costs and quantity in the short run. Also, the prices and wages have the minimal potential to reach a new equilibrium.

Work Cited

Diduch, Amy McCormick. "Normative shortages and the limits of rationing by price." International Review of Economics Education 36 (2021): 100200.

 

Blaug, Mark. "The stability of equilibrium." Famous Figures and Diagrams in Economics. Edward Elgar Publishing, 2010. 

 

 

 

 

 

 

 

 

 

 

 

Demand refers to the consumers' desire to purchase goods and services and their readiness to pay for the prices incurred for the goods and services on order. Supply expounds on the total amount of goods and services availed to market for purchase by potential consumers.