Price Mechanism

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The market system is the mechanism for allocating scarce resources and thereby encouraging a positive investment climate. The problem of scarcity is common in all economic structures. The economic system of a particular country is the way in which its people, businesses and government make choices. Demand is the amount of a product consumers are willing and able to purchase at any given time. However, supply is the amount of a product that is available at any given time. The following diagram shows the relationship that demand has with supply:

The above diagram shows that where the demand and supply intersects, indicates the quantity which suppliers wish to market equals the quantity which buyers are willing to take.
There are many factors that have determined the general increase in global food prices over the last four years. One factor is in late 2006 the unseasonable droughts in many grain-producing countries. The top three wheat producers in the world are, China, India, and the United States respectively. The consequences of drought include diminished crop growth, and the ability to rare livestock. Also, it causes erosion, which further affects plantations and soil consistency. Without water there can be no irrigation. Irrigation is an artificial application of water to the soil for assisting of the proper, healthy growth of crops. Wildfires are also caused by droughts because of the lack of moisture in the air; they consume all agriculture once formed.

Biofuels, a fuel substitute that is derived not from fossil fuels but from biological material maybe another cause of rising food prices. Bio fuels are commonly used in place of gas to power vehicles, to heat houses and even to cook on your stove. The factor that affects the price of crops here is that Biofuels use crops high in sugar and starch, then fermentation of these crops causes the it to produce ethanol. Ethanol is the substance, which is used for power. So as our world is becoming more...
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