Who Determines the Prices of Goods in Market? Government or Free Forces of Market Essay Example
Introduction
Our report focuses on how prices of commodities are determined in Pakistan; whether it is our government who determines the price or the equilibrium principle. The various factors influencing shifts in supply and demand and their effects on the market have also been discussed. Moreover the role of government and the reasons behind their intervention with regard to price determination has also been discussed in considerable detail.
To understand the market forces, it is imperative to first get an understanding of how the forces of demand and supply help to reach the equilibrium price level. After that we shall move on to describing the free market system and mixed economies.
Once the different aspects of prices and markets have been discussed, we shall discuss how the government intervenes. For this we shall focus on the price trends in Pakistan regarding commodities (we shell be using pulses as an example) and how traders and consumers have been affected by these interventions. Viewpoints of traders, consumers and government officials with reference to these policies have also been discussed and analyzed.
Demand, Supply and Equilibrium Price
[pic]
Price is derived by the interaction of supply and demand. The resultant market price is dependant upon both of these fundamental components of a market. An exchange of goods or services will occur whenever buyers and sellers can agree on a price. When an exchange occurs, the agreed upon price is called the "equilibrium price", or a "market clearing price". This can be graphically represented as shown above.
In the above figure, both buyers and sellers are willing to exchange the quantity "Q" at the price "P". At this point supply and demand are in balance or “equilibrium". At any price below P, the quantity demanded is greater than the quantity supplied. In this situation consumers would be anxious to acquire product the producer is unwilling to supply resulting in a product shortage.
Our report focuses on how prices of commodities are determined in Pakistan; whether it is our government who determines the price or the equilibrium principle. The various factors influencing shifts in supply and demand and their effects on the market have also been discussed. Moreover the role of government and the reasons behind their intervention with regard to price determination has also been discussed in considerable detail.
To understand the market forces, it is imperative to first get an understanding of how the forces of demand and supply help to reach the equilibrium price level. After that we shall move on to describing the free market system and mixed economies.
Once the different aspects of prices and markets have been discussed, we shall discuss how the government intervenes. For this we shall focus on the price trends in Pakistan regarding commodities (we shell be using pulses as an example) and how traders and consumers have been affected by these interventions. Viewpoints of traders, consumers and government officials with reference to these policies have also been discussed and analyzed.
Demand, Supply and Equilibrium Price
[pic]
Price is derived by the interaction of supply and demand. The resultant market price is dependant upon both of these fundamental components of a market. An exchange of goods or services will occur whenever buyers and sellers can agree on a price. When an exchange occurs, the agreed upon price is called the "equilibrium price", or a "market clearing price". This can be graphically represented as shown above.
In the above figure, both buyers and sellers are willing to exchange the quantity "Q" at the price "P". At this point supply and demand are in balance or “equilibrium". At any price below P, the quantity demanded is greater than the quantity supplied. In this situation consumers would be anxious to acquire product the producer is unwilling to supply resulting in a product shortage.