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Market Mechanism Essay

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Below is an essay on "Market Mechanism" from Anti Essays, your source for research papers, essays, and term paper examples.

Fundamental Ideas in Economics and the Market Mechanism
  1.
  i. Production possibility frontier
  ii. A movement from point B to A would signify a re-allocation of resources. It shows a reduction in health production and an increase in education production. The opportunity cost of a higher output of education is the output of health that has to be forgone.
A
B
C

Health
Education
Fig. 1

  iii.
A
B
C

Health
Education
Fig. 2

Point C is unattainable. Given the existing availability of resources and state of technology, for the economy to produce at point C, an increment in the total resources or an improvement in technology is needed. (S Ison 2000)

  2.
  i.
Price
P1
Q1

Q2
0
D1
D2
Qd
Fig. 3

When the income of households in Paris and London increases by 20%, it will lead to an increase in the demand for flights shown by a shift from D to D1 because it is a normal good.

  ii.
Price
P1
Q2
Q1
D2
D1
Qd
Fig. 4

When the price of EuroStar between London and Paris is reduced by 50%, the demand for air transportation will reduce because EuroStar is a substitute and this is shown by a shift of the demand curve to the left from D1 to D2.

  iii.
Price
P1
Q1
Q2
0
P2
D
Qd
Fig. 5

The law of demand states that the higher the price of a product, the lower the demand and vice-versa.   Therefore, if the price of an airline ticket decreases by 10%, the quantity demanded will increase from Q1 to Q2 while price drops from P1 to P2.

  3.
  i.
S
P
D2
D
D1
Q1
P2
P1
Q2
Q
Fig. 6

The only determinant of demand is price. Price is important, but consumer's tastes and preferences are also major factors. Even if the price of bread were to fall by a lot, people on low-carbohydrate diets would not buy it if they were still on a diet at that time, and price would have nothing to do with it. Therefore, that statement is incorrect.

  ii.
S
D1
D
Q1
Q2
P
Q
Fig. 7

D1
D
Q1
Q2
P...

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"Market Mechanism". Anti Essays. 13 Dec. 2018

<http://snehaedu.com/free-essays/Market-Mechanism-62298.html>

APA Citation

Market Mechanism. Anti Essays. Retrieved December 13, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Market-Mechanism-62298.html