In the general meaning, economics is the study of manufacturing, supply, and consumption and may be categorized in two wide areas of learning: microeconomics and macroeconomics. Macroeconomics deals with comprehensive financial measures, like general output and general revenue. Macroeconomics has its roots in microeconomics, which deals with market and decisions making of particular economic parts, including customers and business. Microeconomics is the rational starting stage for the education of economics. The study highlights the essential matter in microeconomics; demand and supply study. The demand and supply examination is study to elaborate the process of interaction by purchasers and traders to decide the price and quantity of transaction. The price concurrently reflects the value to purchaser of the following (or marginal) units and the price to the trader of the units. In private enterprise market economy, which is the main apprehension of investment forecasters, demand and supply analysis contains the most fundamental set of microeconomic devices. Some significant factors affect the level of demand in direct or indirect manner to the small changes in the price.
In the following parts, price elasticity, demand elasticity and inelasticity of the demand, factors to determine the price elasticity of demand and impact of each factor on demand for goods or services, is discussed.
Price Elasticity of Demand is macroeconomic expression, which measures relationship between the change in price and change in demand for the goods and services. It shows how change in price of good will influence whole demand of good. Elasticity can be described as elastic or very responsive unit elastic, or inelastic; not very responsive. Price elasticity of demand can be measures as below-
Elasticity can be categorised in three types; elastic, unitary and inelastic. In elastic demand or elastic supply, the elasticity is greater than one, stating the high sensitivity to prices changes. In inelastic demand or inelastic supply, elasticity is less than one, stating low sensitivity to change in prices. Unitary elasticises state comparative reaction of either demand or supply. When change in demand of product does not relate strictly to change in other factors, demand is measured to be inelastic. When the price elasticity of demand is zero, then demand is perfectly inelastic.
Perfectly Inelastic (when PED=0)
If percentage of change in demand is less than percentage of change in price, then demand is inelastic
Inelastic (When PED is between 0 and 1)
When the percentage of change in demand is the same as the percentage of change in price, then the demand is unit elastic.
Elastic (when PED=1)
If percentage of change in demand is more than percentage of change in price, then demand is perfectly elastic.
Perfectly Elastic (when PED>1)
In economics, supply and demand, relation between quantities of commodities, which manufacturers desire to put up for sale at unlike price and number, which customers want to purchase (Jing, Yu & Vniversity, 2016).
The number of the demanded commodities depends on price of the product and potentially on various more factors, like price of other products, income, and customer’s choice, and periodic influences (Zhou, et. al, 2016). The combination of price-quantity may be designed on the curve that is known as demand curve, with price showed on perpendicular axis and quantity showed on parallel axis. Demand curve is usually the downward sloping, showing the desire of customers to buy additional commodities at low price level. The variation in non-price factors will be the reason to shift in demand curve, while changes in commodity’s price may be tracked all along the stable demand curve.
Illustration of increase in equilibrium price (p) and equilibrium quantity (q) due to shift in demand (D)
Sources taken from: Encyclopedia Britannica, Inc.
The number of the supplied commodities, depends not only on price accessible for commodities however also on possibly various more elements, like price of substitute goods, manufacturing technologies, and accessibility and labor cost and other elements of manufacturing. The price-quantity combination can be made on the curve, refers as the supply curve, with price showed on the perpendicular axis and quantity represented on the straight axis. The supply curve is generally upward sloping, showing desire of manufacturers to sell extra commodities they make in the marketplace with high price. The modification in non-price elements will cause the shift in supply curve, where modifications in price of commodity may be tracked by the side of unchanging supply curve (Scheibe, 2018).
Illustration of increase in equilibrium price (p) and decrease in equilibrium quantity (q) due to shift in supply (S)
Sources taken from: Encyclopedia Britannica Inc.
The market equilibrium is marketplace’s operation to compare demand and supply throughout price mechanism. However, when purchasers desire to buy additional goods than obtainable at the current price, they will be inclined to offer the increased price. In the case where, they desire to buy less than is obtainable at the current price, dealers would offer decreased price. Therefore, there is the leaning to go toward stable price. This inclination is considered as the marketplace instrument, and the ensuing stability between demand and supply is known as the market equilibrium (Cook, 2017). Since price increases, quantity proposed normally raises, and the desire of customers to purchase the good usually decreases, however these modifications are not essentially relative. The assessment of reactions of supply and demand to modifications in price is called the price elasticity of demand or supply, considered as fraction of proportion vary in quantity supplied or demand to proportion vary in price. Therefore, when commodity’s price reduces by 10% and sale of goods accordingly rise by twenty percent, afterwards price elasticity of demand for the good is supposed to be two (Leese & Brison, 2018).
The good’s requirement, which have willingly obtainable substitute, is probable to be flexible, that signifies that this would be more approachable to alterations in good’s price. This is because customers may simply substitute the goods with other, when the price increases (Wunder, 2015). The product’s demand can be inelastic but there are no secure substitute and if expenses on good make only the little portion of the earning of customers. The firms faced with comparatively inelastic demand for the goods can raise the complete income by increasing prices; those featuring the elastic demand may not. The evaluation of demand and supply can be applied to marketplaces for the final service and product or to marketplace for work, assets and more elements of manufacturing. This may be applied at firm level or industry level or at aggregate stage for complete wealth or financial system (Azevedo & Leshno, 2016).
Factors affecting price elasticity of demand and impact of factor on demand for good and service-
These are seven major factors, which influence price elasticity of demand-
The elasticity of demand is based on nature of product, like whether the product is essential or the luxury product. The elasticity of demand for essential products is comparatively small. For an instance, if the price of this product increases, its purchasers normally are not capable to decrease the demand. Yet again, if price of the essential product decreases, the purchasers may not significantly raise the purchase of products, as the product is the requirement or need, they had been buying the necessary quantity at last price (Christopher, 2016).
If close substitute for the specific product are present in marketplace, afterwards the product’s demand will be comparatively more expandable. For an instance, since tea is the close alternative of coffee in the marketplace, the increment in the coffee’s price will result in the substantial descend in the demand and the consequential increment in demand for tea? Consequently, demand for coffee will be comparatively more expandable because of accessibility of tea (Landry, et. al, 2016).
Yet again, on the other hand, if price of coffee falls, after that individuals may decrease the use of tea and they may significantly enhance the use of coffee.
The more quantity and variety of use of the product, the more will be the elasticity of demands. One the product is power, which is used in various manners. This is the reason that, when price of electricity decreases or increases, the demand will rise or reduce in the uses, and so, in entirety, the demand would fall or rise significantly, providing the high value of arithmetical coefficient of price-elasticity of demands.
The price-elasticity of demand for the product is based on the percentage of the earning the purchasers use on product. However, the purchasers use the small percentage of the earning, after that; they will not significantly reduce the buy of the product as its price rises. Conversely, as the purchasers use the little portion of the earning on product, they purchase the product more or fewer according to the necessity at the specific price. For that reason, when price of product falls, they do not significantly rise the buying. This is resulted then that if purchasers use the little amount of the earning on the products, then the price-elasticity of demand will be moderately little. Alternatively, if they use the huge part of the earning on the product, then the elasticity of demand will be comparatively high.
There is the important role of habit of individuals in deciding the scope of the elasticity of demand for the product. From time to time, some individuals totally surrender to the use of article of habit such as drug, drink and tobacco goods. Therefore, if price of the products rise, demand for them do not reduces significantly and so the elasticity of demand would be comparatively little.
When the purchasers are capable to suspend the buy or use of the products, if necessary, then this will have the comparatively higher elasticity of demand. Therefore, if the price increases, the buying will be delayed and the demand will decrease, and if the price falls, the deferred demand will show in the marketplace (Arbieu, et. al, 2017).
The elasticity of demand for the product is based on an individual price. Because prices change, number demanded of products change, due to the demand law. In addition, at various price of the goods, like at various stages on the demand curve for the product, the coefficient of price-elasticity of demand for product will be dissimilar. Usually, lesser the price of the product, fewer is elasticity of the demand (Wolff, Schulp & Verburg, 2015).
Conclusion
As per the above analysis, it can be said that the supply and demand is financial model of price determination in the market in microeconomics. It proposes that, holding all equal, in viable marketplace, the unit price for the specific good, or other traded item like labor or liquid financial asset, would vary until it settles at stage where number demanded (at present price) will equal the quantity supplied (at present price), resulting in financial stability for price and amount performed. The elasticity is the degree of demand curve and it is reaction to the price. The more affected by price, the more elastic, significance the price desiring to be paid would not differ so much from normal. The little increment in the price can cause size demanded to reduce by the large amount and the minor reduction in prices can cause number demanded to rise by the great amount. The inelasticity happens when demand for the products or services is not affected by the price. The services and products are considered extremely variable if even the small changes in price leads to the severe changes in quantity supplied or demanded.
Donald Trump has succeeded over Hillary Clinton after the long movement for the government of USA. The financial market of USA has been improved. For the followers of Donald Trump, Donald Trump states the opportunity to shake the system, which various citizens of USA feel has improved dissimilarity and compressed standard of living. For less satisfied shareholders or depositors, there are fears Donald Trump’s anti-globalization approach would spread protectionism in the globe, put up commerce obstacles and restrain global economic development. Moreover, marketplaces do not like unknown and with Donald Trump leaving to the White House, they are functioning with the complete beginner to government. The management of Donald Trump is extensively predictable to score a different approach from the policy of individual Republican Party as well as the outgoing democrats.
In recent times, the protectionist approach raised. On 6July 2018, The USA imposed the twenty-five percent duty on 34 billion$ of import of China, as China directly reacted with twenty-five percent tariff on agriculture produces and motors of USA. The USA is at present evaluating tariff on more sixteen billion $ value of products of China, and Donald Trump has stated in recent periods that he can increase tariff to almost all imported products of China. In the following parts, the protectionist policies of Donald Trump, impact of protectionist policies on Australian businesses, and the importance of comparative advantage is discussed and critically examined.
It is not just the agriculture area of Australia, which has place to get. Other USA export slugged with twenty-five percent tariff by China is crumb aluminum that is dissolved and recreated in Chinese furnaces, NPR reports. Australia has showed the export of such waste resources increase piercingly while year 1990. According to the ABS, in year 2012, China was big commercial partner for waste exported goods, taking about six hundred million dollar worth or thirty one percent of the waste metals export,. The states of Asia are also the huge importers of metal or coal that is used in explosion of furnace to make steel. With USA levying the twenty-five percent tariff on steel trades from China, the states of Asia can determine to source more of the met coal from somewhere else. As the Australia is top coal exporter of world, so it could obtain the reward (Swedberg, 2018).
Chris Richardson from Deloitte spoke Sky in recent period that the full-blown commercial war “would not be attractive” for an Australia, in spite of the calculations of media of USA. It is warned by Richardson that this will be “malicious” but “not end of earth”, forecasting the hit to economy of China can take between 1 and 2 months’ normal progress out of economy of Australia.
Moreover, it can be the difficult harmonizing act, particularly after state media of China just initiated the direct stand against Australia, accusing people of being the “anti-China pioneer” above the role on the South China Sea. Kevin Rudd has also assaulted approach of Mr Turnbull to the state of Asia, reproving the Government of “blowing hard and soft” at period while “people do not know what prospective rule would be”.
The primary American policy is opening new door for Australia as China and countries of Asia turn away from USA. The Australia is trapped in middle of the complex relationship. China has grown to be big and most significant trade partner of Australia as the 2nd large economy continue to raise at quick speed. Canberra has functioning hard to make stronger ties of Australia with Asia without estranging the close helper in USA in random days of management of Donald Trump. Australia stayed part of trans-pacific partnership commercial transaction after USA pulled out and has developed Australia-China Free Trade contract.
It is very difficult period for world, with stock declining for the second day on Tuesday amid jitters about Chinese-USA tension and rising inspection of tools company. The depositors are worried it enhances risk of the broad disagreement, which may sadden international trade. Whatsoever happens, Australia can play the critical role, and requires attaining these rights(Ezeani, 2018).
Above the short-term, there would be limited influence on the businesses of Australia, as long as Australia is not aimed in direct manner(Irwin, 2018).Certain Australia was excluded from the scope of steel tariff and aluminum tariff. The truth is that USA really has the commercial surplus with Australia; Australia is improbable to be aimed by the USA almost immediately. Furthermore, the large number of products exported to USA are consisted by the USA-Australia Free Trade Agreement. If we look at the financial market, this shows the same scene, with S&P two hundred index at the five years higher(Kim, 2018).This shows that the marketplace is not upsetting so much regarding the commercial war (Fligstein & Calder, 2015).
In fact, Australia may stand to advantage from commercial war between China and USA. The primary list from China aims agriculture goods of USA, involving soybean, wine and meat. Australia is well located to give alternative for the claim.
The long-term influence on commercial policy of Donald Trump on business of Australia is vaguer. This is based on whether the present protectionism strategy is used as the device of negotiation over trade or the management of Donald Trump means to apply it in long run. When people do not come back to compromise table and the commercial fight extended, this would finally hit the financial system of both side, and slow down the international financial development. This also takes more ambiguity in the world. Business does not like uncertainty and would most probable cut back investment. For Australia, this probability refers the low demand and price for the commodities export. The Minerals and fuels report for 45% of the total export of Australia in the financial year 2017.
However, this is very probable that the USA would not burn down the present foreign commercial system it led to develop. First, previous experience has stated that tariffs do more damage than product to the financial system. This does not protect the industry it means to and customers finally make payment for price. Second, there is the risk, which raised commercial war would initiate to weight on solid functioning economy of USA, which would have adverse influence on the future middle elections. Third, as per the Deutsche bank, USA in fact has the commercial surplus of 1.4 trillion dollar when both commerce directly and the sale of international company is considered. This is in fact advantaging from globalization. Consequently, this is complex to image the USA would take the complete scale protectionism strategy above the long term. It is more likely that Trump is making use of tariff to discuss great deal on commerce and more things. If it is matter, the influence on businesses of Australia is limited (Parnreiter, 2018).
The threat that absorbed the planet a decade ago in the time of the financial crisis is still fixed in various memories, and the years that followed taken rising joblessness, debt crisis, and financial depression. By contrast, the location where gross local good will increase in the upcoming 8 years and where joblessness will decline. Until now, it was precisely the experience of large state of Australia, Western Australia. The area has high income per capita than USA, approximately seventy thousand dollars, a stunning feat. From the last fifteen years, the staggering four hundred billion dollars of private venture run in the mining and energy industry of state, expanding export facility for good like iron ore. Most of those export, Donald Trump would adore this, are traded to China, totaling approximately forty five billion dollars per annum (Bailey, et. al, 2018).
There is an advice for the citizens of Australia in the fairytale, too. For most of twenty century, the economy of Western Australia suffered in the protectionist policies Australia’s central government used to prop up production in other state. Tariff on car hits rates as high as one hundred forty three percent, pushing high price onto customers(Sheldon, Chow & McGuire, 2018). Nowadays, various businesses of America believe hard line tariff of Donald Trump would influence the accessibility of daily use items like tools of gardening. Perhaps the nastiest commercial policy of America was the restriction on iron ore export, made to encourage domestic steel producers that presented for two decades until it was lifted in year 1960.
Australia regularly leveled down the protectionism, and that was not without costs, the nation does not manufacture cars anymore and employ has stirred from built-up in the healthcare and education. Nevertheless, how is it for sarcasm: the big mining firms of Western Australia are world leaders in mechanization of transport?
The very significant idea in the financial theory, comparative advantage is the basic tenet of the disagreement that all performers, at all periods, may equally advantage from collaboration and intentional deal. This is also the opening standard in the foreign commercial theory. Automation frequently takes concern of work loss, so far the mining industry is hiring more individuals than this did the period ago. Using the member of team in most creative manner possible, rather than in ineffective industry that need security, undergirds good standards of living(Cheng, 2018). In swap for iron ore, Australia may purchase the huge number of international produced cars than it will have capable to economically produces itself.
The international capital was also critical for financial success of Western Australia. Latest gas projects backed by USA energy business Chevron show as example, they have invested about eighty billion$. One of these assignments, Gorgon, is expected to make $1 trillion of productivity for Australia above the lifetime. The primary capital can never sensibly be made in the nation with the small portion of twenty five million. However, without international venture, the gas sources will never be closed, and with no free commerce, they will never be used. The supply chain is worldwide capital of America and Aussie labor fulfill the demand of Asia (Laursen, 2015).
Donald Trump requires accepting that not every country may do all thing and in the correct manner. Thus, why will not a nationalistic nation make focus on what this nation does good and what may produce the high living standard for the own individuals? In spite of the tax reform attainments, Donald Trump is merely not correct on commerce. As the remaining countries move on, seeking more manners to work jointly for income or benefit, USA is seeing to the history. If Donald Trump carries on to take economy of USA back in period with the dated protectionist policies, he will use a twist of expression from the gentleman himself.
Conclusion
As per the above analysis, it can be said that the large economy of the world is rapidly moving to the protectionist position in the foreign commerce. The protectionist policy is the policy, which gives the unreasonable benefit to the domestic industry against the global rivalry. The practices have the great past in economic system. The protectionism is also the great concept when making deal with newborn industries. This provides great period to a company to make investment in the manufacturing facilities, staff skill and attain the faith of local customer before the state marketplace at last opens to global contestants. The most possible manner that policies of Donald Trump can advantage the economy of USA, while, is simply by posing the probable fear to commercial partner of USA. Once the outrage against the protectionist hazard subsides, various nations would be happy to lift the personal forms of protectionism against the goods of USA and sign commercial deals more positive for USA export (Lieberman, et. al, 2018).
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