Business Economics

12771 6/12/2012

Introduction: a market is a place where seller and buyer come together and with both
combinations they fix the price it depends on demand for goods, market competition and availability of the product. Only seller or buyer cannot fix the price. On that assignment we will discuss about especially on demand and supply. Before we go to the further discussion we should have idea about demand and supply.

Demand:
The amount of goods , resources and services that people are willing and able to buy during a specified time and period. Which means buyer cannot demand for the things which are not possible to buy, he/she has to have the ability to consume it.

Law of demand: If the price(p) of goods rises , quantity of demand (q) will decrease If the price (p) of goods falls, quantity of demand (q) will increase.

DEMAND GRAPH:

PRICE

P1 P D QUANTITY Q1 Q

On that graph, horizontal axis is quantity and vertical axis is price, the effect on demand changes in price is called movement along the demand curve.

Supply: The relationship between the quantity supplies of goods and the price of the goods when all other influences on selling plans remain the same. Law: 1. Increase in supply will lead the price to fall and sales to rise

2. Decrease in supply will cause price to rise and sales to rise.

Supply graph:

price (p)

s
s1 p p1 excess supply

D q q1 quantity ( q )

p and q are the original price and sales, s1 represents the increase in supply (shift right)at the original price p there is now excess supply ( s1>D). so price falls to P1 and demand rises to Q1.

SECTION:1

(A)

The UK economy was performing very badly in 2009 where household income were cut and frozen. The FTSE 100 shares was falling, therefore demand for household will fall, thus demand of household explained by the shift of curve from the right to left.

p Surplus Price of Household

p1 p2 D2 Q2 Q1 D1 Quantity (Q) of Household

Assumption: P1 and Q 1are the original price and sales of household, D2

represents

the decrease in demand for household ( shift left),therefore price will be decreased P1 to P2 and sales accordingly Q1 to Q2. AT THE ORIGINAL PRICE ( p1) there is now surplus for household. The graph shows in summary: D SURPLUS P S

(B)
Assumption: we know that, oil and insulation are substitute products, when substitute products are available in everywhere people dont care about expensive one while they can buy in cheap price. For example: bus and tram are substitute if the people found tram is cheaper people will switch to the tram rather than getting on the bus. Samely, heating oil is cheaper than insulation material, so people will not spend their money on insulation while they can heat their house by oil.

P PRICE OF insulation SURPLUS S

P1 P2 D1 D2 Q Q2 Q1 Quantity of insulation

Explanation:
Decrease in demand will cause the price to falls and sales to fall, on the diagram shows that P1 and Q1 are the original price, a sharp fall in the price of heating oil will lead the sharp decrease in insulation material from D1 to D2. Which will lead the demand curve to the left, which will make surplus on original price therefore S1> D2. So the price (p1 to p2 )and the quantity (q1 to q2 ) will fall dramatically.

(c)
D

the household income fall lead the shift in demand for petrol which means income

and

the price of crude oil also fall again lead the supply of petrol, here we can see

that the quantity of petrol sold more than demand and supply changed occurred. Which means at the same time demand and supply will occurred because crude oil petrol. We can say: income oil refinery

AND

price of crude oil

Price Demand Supply

quantity

So ultimately, demand and supply will fall and the quantity has to increase.

PRICE OF PETROL P S1 S2

P1

D2

S1

D1

S3

P2

D2

D1

Q Q1 Q2 Quantity of Petrol

RENT CONTROL:
rent control means where government impose legislation for the rent to the private sector or householder, that means government will fix a ceiling price or maximum price, nobody are allowed to take more money than that if they take they will break the legislation which may lead them to the prison or costing money.

AIM: to maintain the living standard and helping to the poor people.

Price of House (rent) S

50 Pe 30

Eq

Maximum price

D Qs Qe Qd quantity

On that graph we can see that, Pe AND Qe is the market clearing level, market price 50 where buyer and seller demand, but the government decided the house rent will be 30 pw according to the rent control law. Which called ceiling price, if anyone takes more than 30 pounds a week he/ she will punished, but the problem arises when this law imposed, on that graph we can see

that, the demand for house is Qd but once this law imposed the supply of house decreased, which made people homeless.

Consequence: government wanted to help poor people to get a good house but the
situation became more worse, because people make their house to get a good amount of rent , once they knew the rent is not worthy they were not giving rent to the people, they keept their house empty rather than giving away. Therefore before 1980 its been seen a lot of people were homeless. There was a lot crisis for house, its not because of there is not enough house, just because householder were not renting their house.

Removal of rent control:

in 1980 the government removes the rent control

because of this above consequence. After removing the rent control the house rent became increase but there was enough houses to live, market competition and demand for house with this both combination the rent came into stable position which we called equilibrium where demand and supply curve crossed at Eq.