Unit 2 Markets and Welfare学生阅读.docx
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Unit2MarketsandWelfare学生阅读
UnitTwoMarketsandWelfare
READINGONE
TheMarketForcesofDemandandSupply
Amarketisagroupofbuyersandsellersofaparticulargoodorservice.Thebuyersasagroupdeterminethedemandfortheproduct,andthesellersasagroupdeterminethesupplyoftheproduct.Sometimesmarketsarehighlyorganized,whilesometimesless.
Price
Supposeaneconomyrunsonthelinesofthepurelycompetitivemarketoffreeenterprise，thenwhatisproducedandthepricesatwhichtheproductsaresolddependuponthedecisionsandchoicesmadebybuyersandproducers．Sometimesduringagoodseasonforcitrusfruitssomanyorangesareproducedthatthereisaglut，andthefarmersfindthatthelowpricestheyreceivedonotcovertheircostsoftransportingthefruittomarket；sometimesthefruit-growersallowpeopletopickalltheywant，free，oravoidthefruitrotting．
Whatandhowmuchshouldbeproduceddependonthepricemechanismwhichmakesknowntofirms．Thepricemechanismistheprocessbywhichpricesriseandfallasaresultofchangesindemandandsupply,andtherebyactsasasignaltoproducerstoguidethemontheirproductionplans．Thisprocessismosteasilyseeninthewayinwhichpricesforfruitandvegetablesfluctuateaccordingtochangesinsupplyduetoseasonalclimaticvariationsandthedifficultyofstoringasurplus．
Therewerenorestrictionsata11ifoureconomywereentirelycompetitive,thenthemarketforces，orpricemechanism，wouldoperatefreely.Producerswouldputtheproductstothemarketwhichconsumerswerewillingtopayenoughforit.Thedemandforaproductandthepriceatwhichitcanbesoldindicatetotheproducerthebestwaytoallocateresourcesinordertomakeaprofit．
Asforthedemandforacommodity,economistsmeanthequantitywhichbuyersarewillingtopurchaseatagivenpriceoveragivenperiodoftime.Demandinaneconomicsenseonlyexistsiftheconsumershavethemoneytobuythegoodsandarewillingtopayforthem．So,wecalliteffectivedemand，whichmeansadesiretoobtainanarticleaccompaniedbytheabilityandwillingnesstopayforitatthepriceasked．Ineconomics，whenwespeakofdemand，weareusuallyreferringtoeffectivedemand．
Generallyspeaking,consumerswanttobuygoodsandservicesascheaplyastheycan，whilesellerswanttosellatthehighestpricestheycanobtain，butnotsohighastolosesales．Thefactthatbuyersarelikelytobuymoreofanitemasthepricefallsiscalledthelawofdemand．Ontheotherhand，aspricesrise，sellerswouldliketosellmoreandwill,ifitispossible,offeralargerquantityforsale．Thisisdefinedasthelawofsupply．Somehowthesetwoconflictingdesiresofbuyersandsellersmustbebroughtintosomekindofagreement，ortherewillbeasurplusofhighlypricedgoodswhichbuyersarenotwillingtobuy,orashortageofgoodsbecausesellerswillnotproducethemforsaleatalowprice．
Fromtheperspectiveofthedemandside----thebuyers，thehigherthepriceofacommodity,thegreaterthevalueofalternativeswhichmustbegivenuptobuyit．Thatistosay，theopportunitycostappears．Thereforebuyersshouldtakethepricesoftheitemstheywantandatthepricesofothergoodsintoconsideration，andmostimportantofall，attheirincomesandmoneyavailableforspending．Changesinpricesurelyaffectconsumerdemandalltheway．
Demand
Ifavendorissellingapples，andhefindsthatat10centsakilogram，70kilogramscanbesold．Onincreasingthepriceperkilogramto20cents，60kilogramsaresold；at30cents，50kilogramsaresold；andsoon，untilatthetoppriceof80centsnoapplesatallaresold．Thiscanbeexpressedasademandschedule，showninTable2.1．.Thefiguresinthisdemandschedulecanthenbeplottedonagraph（Figure2．1）andtheresultiscalledademandcurve．ThedemandcurveinFigure2．1showsthetotaldemandbyconsumersforapplesatthisparticularshop．
Table2.1DemandScheduleforApples
Price（cents/kg）
Quantity
Demanded（kg）
Price（cents/kg）
Quantity
Demanded（kg）
10
70
50
30
20
60
60
20
30
50
70
10
40
40
80
Nil
Asfaraseconomistsorbusinessmenareconcerned,totalmarketdemandmeansalltheindividualbuyers’demandsforaproduct，atvariousprices,addedtogether．Ineconomicswearereallymoreinterestedinthemarketdemandthaninthesalesmadebyanindividualvendor，becausetotaldemandaffectstheeconomyasawholeandgivessignalstoproducersonwhatandhowtoproduceandinwhatquantities．
AccordingtoFigure2．1,youcanseethatthepriceisshownontheverticalaxis，whilequantityisshownonthehorizontalone．Thisisaconventionaldemandandsupplygraph．Figure2．1demonstratesthataspricesfall,alargerquantityofagoodisdemanded．Thetypicaldemandcurveslopesdownfromlefttoright．Thisindicatesthatconsumersbuymoreofagoodatlowerpricesandlessathigherprices，butatverylowpricesdemanddoesnotnecessarilyincrease．InFigure2．1．,thissometimescanbecalledanexpansionorcontraction，oramovementalongthecurve.
Supply
Whenevermentioningthetermofmarketmechanism，wehavetoconsiderthedecisionsmadebythesupplierorseller．Asellerwantstosellasmanygoodsaspossible，andatthehighestpricespossible,whichisquiteacontrarydesiretothatofthebuyer．Thesellermustbearinmindthat----iftheywanttosurviveinbusiness,coveringcostsandmakingaprofitarethenecessity．Surely，itisnecessarytosupplygoodswhichconsumerswillwanttobuy,andprovidethepricewhichtheycanafford．Atthesametime,thepricesbeingchargedbycompetitorsforsimilargoodsmustalsobetakenintoaccount．Theresultoftheseller’sdeliberationswillalsoresultinacurve，asupplycurve（Table2．2）．Wecanusethesameexampleasforthedemandcurve：
theshopkeepersellingapples．Thesupplyschedulewouldbelikethis.
Table2.2SupplyScheduleforApples
Price
（cents/kg）
Quantity
Supplied（kg）
Price
（cents/kg）
Quantity
Supplied（kg）
80
100
40
60
70
90
30
50
60
80
20
40
50
70
10
30
Supplynotonlydependsondemand,butalsoonthepricethesellerreceives．Acompromisebetweenhowmuchandatwhatpricethesellerdecidestosellandtheconsumers’planstobuymustbearrivedat．Thisiscalledtheequilibriumpriceandisthepriceatwhichthebuyerispreparedtobuythequantitywhichthesellerispreparedtosellatthatprice，sothatthemarketisclearedandthereisnosurplusandnoshortage．Intheexampleoftheapples，bycomparingthedemandandsupplyschedulestheequilibriumpricecanbeseentobe30centsperkilogrambecauseatthatpricebothbuyersandsellersaresatisfiedwiththeprice．Ifyouplotthedemandandsupplycurvesonthesamegraphyouwillfindthattheyintersectattheequilibriumprice．
ChangesinDemand
Whatcancausechangesindemandforanitem?
Firstofall,itisthechangeofprice.buttherearealsootherinfluenceswhichcanchangedemandforgoodsandservices．Themajorcausesare：
pricesofrelatedgoods,changesinconsumertastes,pricesofallothergoodsandservices,theincomeoftheconsumer,andfutureexpectations,etc.
Figure2．1justshowsdemandchangingsimplyonprice，noneoftheotherfactorswhichaffecttheconsumerspurchasinghavechanged；suchastheirincomesortastes,etc．Achangeinthepriceofagoodresultsinamovementalonganexistingdemandcurve．Iftheotherconditionswhichaffectdemandshouldchange，andnottheprice，thenourgraphwilllookdifferentbecausewehavewhatiscalledashiftinthecurve；anditwilllooklikeFigure2．3．
InFigure2．3thepricehasremainedunchangedbuttherehasbeenachangeindemandcausedbyfactorsotherthanprice．Althoughthepriceofthecommodityhasremainedunchanged，therehasbeenanincreaseindemandforitatthatprice．Thisincreaseddemandcouldhavebeencausedbyachangeinanyoftheotherfactorswhichinfluencedemand，suchasthesizeofincome，pricesofalternativegoods，changesintaste，andsoon．
Similarlythedemandcurvecouldshifttotheleftifthereisachangeinanyoftheseconditionsotherthanprice，influencingpeopletobuylessofacommodityevenifthepriceremainsunchanged．
ChangesinSupply
Supplycanbealsoaffectedby：
thepricereceivedfortheitem,thecostofproducingtheitem,taxesimposedwhichraisetheitem’smarketpricetoconsumers,subsidiesawardedtoproducerswhichreducethecostsofproduction,pricesofothergoods,futureexpectations,changesinsupplyduetothenatureofthegood,etc.
Supply,thesameaswithdemand，anychangeofpriceresultsinamovementupordowntheexistingsupplycurveifnootherchangesoccurtoaffectsupply．
Justasanychangeinunderlyingconditions，apartfromprices，causesashiftinthedemandcurve，soanychangeintheconditionsotherthanmarketpricescausesashiftinthesupplycurve．Thesupplycurvecanmoveleftwardsif,forexample，costsofproductionrose，withconsumersbeingunwillingtopaymorefortheitemandsuppliersunwillingtosupplyasmuchatthesameprice．
Adropinproductioncostscouldleadtomoregoodsbeingputonthemarketwithoutapricechange．so，thereisanincreaseinsupplyatthesamepricefromS1toS2，asinFigure2．4，butsuchanincreasemightleadtoasurplusonthemarketandapossibleneedtoreducethemarketprice．Thismeansthatanewequilibriumpricewouldhavetobereached．Buyerswouldbepreparedtobuymoreatthelowerprice，thereisamovementalongthedemandcurvebutnotashiftinthepositionofthecurve．Consumershavereactedtoapricechangebroughtaboutbyachangeinconditionsofsupply,butthisdemandchangeisnotdi
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