Microeconomics

Topics: Supply and demand, Market, Microeconomics Pages: 7 (2367 words) Published: September 5, 2013
The notion of “fairness” is often the justification given for the government intervention in the market. Do you agree or disagree. 1.0 Introduction
Fairness in the market can be defined as the equally distribution in the proportion of economic pie to every party. In the past, the economic prosperity is not uniformly allocated among the members of society. The wealthier will have a larger proportion of the economic pie whereas the poorer parties will only occupy a smaller part of the economic pie. However, there is a decrease in unfairness since the liberal market economies is introduced. 2.0 Market mechanism

Market mechanism is used in describing how the supply and demand work in the market economies. Supply and demand are important in the determining the price and quantity of goods and services that can be offer to sell in a free market.

Graph 1.0 shows the supply and demand curves
Supply is the relationship of the quantities of a goods or services that the sellers are able and willing to sell at each price within a specific time period. The law of supply claims that the increasing in the price of goods will leads to an increase in the quantity supplied. The quantity supply is directly proportional to the price of goods. Therefore, movement along the supply curve happens. A market supply curve was stable when everything is hold constant. However, when there is changes in one of the factors such as increase in the input price, this will result in the shifting in the supply curve. Shifts the supply curve to the right is called an increase in supply while shifts the supply curve to the left is called an decrease in supply.

Graph 2.0 shows the shifting in supply curve
In the other hand, demand is the relationship of the quantity of a goods or services that the buyers are able and willing to buy at each time within a specific time period. According to the law of demand, the increase in the prices of good will decrease the quantity demanded. The quantity demand is inversely proportional to the price of goods. This will cause the movement along the demand curve. Like the market supply curve, when factors such as income of buyers changes, shifting of demand curve happens. Shifts the demand curve to the right is called an decrease in demand while shifts the supply curve to the left is called an decrease in supply.

Graph 3.0 shows the shifting in demand curve
Although the mechanism provides market with the most efficient economic results possible, high efficiency for supply curve might not be the same as efficiency for demand curve. When the supply and demand curve is combined, the intersection point between both curves is the equilibrium point. The equilibrium point is the maximum efficiency reach by one party without harming the other party. Therefore, the market had to be constraint in order to protect both seller and buyer at the same time.

3.0 Government Intervention
The main reason for government interventions in the market is to respond to market failures, to attain market economic efficiency and equity, and to prevent abuse of market power. When policymakers feel that the market price of a good or service is unfair to either the buyer or the seller, the government will step in and take control of the price. In the market, buyers will always desire a lower price whereas sellers will always want a higher price. This will cause conflict between both groups. In order to solve this problem, government intervenes the market using price ceiling, price floor, taxes and subsidies.

4.1 Price Ceiling
Price ceiling is the legal maximum price that a seller is allowed to charge for a good or service.The government will impose a price ceiling when the price of a good or services is too high. It is one type of government intervention that can ensure the price of a good doesn’t exceed above a certain level so that the buyers is able to pay for the goods or services. For example, the government set a...

Bibliography: Kevin, A. (2010) Supply Demand and Government Policies, Slideshare. http://www.slideshare.net/kaycock/ch06-supply-demand-and-government-policies
Mankiw, N.G.(2009) Principles of Economics, 6th edition, South- Western, Cengage Learning.
Minnessota States University Mankato (2012)Supply and Demand: The Market Mechanism,United States of America http://kr.mnsu.edu/~renner/supdem.htm
Morrissey, ED. (2010) Shocker: Yet another government intervention failure story, Hot Air. http://hotair.com/archives/2010/01/02/shocker-yet-another-government-intervention-failure-story/
Sherfin, H. and Statman, M.(1993) Financial Analysts Journal Vol. 49, No. 6,CFA Institute.
Scholasticus, K. (2011) Price Ceiling, Buzzle.Com. http://www.buzzle.com/articles/price-ceiling.html
Tomasi, J.(2011) Free Market Fairness,Bleeding ,Heart Libertarians. http://bleedingheartlibertarians.com/2011/06/free-market-fairness/
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Microeconomics Unit 1 Essay
  • Microeconomics Essay
  • Written Assignment 1 MicroEconomics Essay
  • Microeconomics
  • Explain Briefly How Macroeconomics Is Different from Microeconomics. How Can Macroeconomists Use Microeconomic Theory to Guide Them in...
  • Microeconomics Essay
  • Microeconomics Samuelson Essay
  • Intermediate Microeconomics Essay

Become a StudyMode Member

Sign Up - It's Free