There exist different factors which influence the demand and supply of commodities and services in a market, which in turn have influences on the level of prices in the market. Keeping this into consideration, the concerned assignment tries to discuss the factors influencing the changes in demand and supply in the market in general, thereby emphasizing on the main factors which have influences on the price of eggs in the United Kingdom (Frank and Cartwright 2013).
The demand of a normal commodity is inversely related with the price level of the same and the supply of the commodity is positively or directly related to the price levels, which in turn implies that the demand curve for normal commodities is usually negatively sloped while the supply curve is generally positively sloped (Hall and Lieberman 2012). The dynamics in a market are thus, determined by the movements of demand and supply and the equilibrium situation is at the intersection of the demand and supply schedules in the market, as follows:
Figure 1: Demand Supply dynamics and Equilibrium in the market
(Source: As created by the author)
As is evident, the equilibrium is at the point where the demand and the supply curves cut one another, with the equilibrium price being (P0) and that of the equilibrium quantity (Q0) (Rader 2014).
The demand curve shifts towards the right when the demand for products increase in the market and to the left when the demand decreases. This is evident from the following diagram:
Figure 2(a): Increase in demand
Figure 2(b): Decrease in demand
(Source: As created by the author)
With the increase in the demand, supply remaining unchanged, price of the product increases and with the decrease in demand for a commodity the price also decreases (Ruttan and Thirtle 2014). There are different factors which affect these changes in the demand curve, which are discussed as follows:
Keeping other factors unchanged, the demand for products usually increases or decreases due to the following factors:
Income- An increase in disposable income results in an increase in demand for products in general and vice versa.
Substitutes- With the increase in the price of the substitutes, the demand for the products increases and vice versa (Kalecki 2013).
Complements- With the hike in the price of the complementary products of a commodity, the demand for the commodity itself and vice versa.
Seasonal factors- In many instances the seasonal factors like whether and others lead to increase or decrease in the demand for certain products or services (Friedman 2017).
Government Policies- The demand for products and services can also depend on the policies implemented by the government (which may include pricing policies as well as that of tax and subsidy policies (Canto, Joines and Laffer 2014).
Expectations- The expectation of the consumers regarding future prices also influence the demand for the products. When the future expected price increases, the current demand for the commodities increase and vice versa.
Advertisement- Promotional policies and advertisements also have implications on the demand for the products (Helmes and Schlosser 2013).
Like that of demand, the supply curve for products shifts rightwards with the increase in the supply and leftwards with the decrease of the same, as the following figures shows:
Figure 3(a): Rise in supply
Figure 3(b): Fall in supply
(Source: As created by the author)
With the increase in the supply of a product (demand unchanged) the price falls while with the decrease in the supply the price for the product increases (Moulin 2014). There are different factors which affect the supply of products:
Cost of production- With the increase in the production cost of a product the supply of the same decreases and vice versa.
Technology- With the advancement in technological framework, the supply of products increases and vice versa (Boland 2014).
Factor prices and availability- The supply of a product increases with the decrease in the price of its inputs and increase in its availability and vice versa.
Price of related goods- With the increase in price of substitutes of a product, more producers tend to shift to the production of the substitutes, thereby decreasing the supply of the product itself and vice versa (Cowell 2018).
Government Policies- The policy framework of the government like that of tax and subsidy also have implications on the supply of a product.
Natural conditions- The supply of products (especially agricultural and other related products) also depend the natural conditions and seasonal changes in the geographical region (Varian 2014).
Eggs fall under the category of normal goods or normal luxury goods in general across the globe. In the United Kingdom, egg is treated as one of the primary commodities in the consumption basket of general population (Tomek and Kaiser 2014). There are different factors which effect the price of eggs in the country, the primary ones being as follows:
Cost of feeds- An increase in the cost of feeds of the birds, increases the cost of poultry farming, which affects the supply of eggs negatively, as can be seen from the following figure:
Figure 4: Decrease in supply of eggs due to increase in cost of feeds
(Source: As created by the author)
This in turn, with the demand remaining unchanged, can increase the price of eggs in the UK. Again, the inverse happens if the cost of feed falls (Valin et al. 2014).
Death of birds- Instances of sudden death of birds in huge numbers due to diseases and similar reasons can also lead to fall in the supply drastically, thereby increasing the price of the same (Valin et al. 2014).
High quality- The price of eggs also depends on their quality. If the quality of eggs is high, then the demand for the same also increases, the effects of the same being as follows:
Figure 5: Increase in demand due to high quality of eggs
(Source: As created by the author)
Thus, with the rise in demand for eggs (supply remaining unchanged), the price of eggs is expected to get hiked in the UK.
Increase in awareness about healthy eating- The current increase in the awareness of people in the UK, about healthy eating habits can also have positive implications on the demand for eggs, the result being same (as that of Figure 5), where the increase in demand leads to increase in the price of eggs (Lee, Gereffi and Beauvais 2012).
Increase in income- The increase in the disposable income of people is also expected to increase the demand for eggs, which may increase the price of the same.
Government policies- The production of eggs also depend on the government policies and the tax and subsidy situations. For instance, if the government of UK provides subsidies to the poultry farmers, then the supply of eggs is expected to increase, the result being as follows:
Figure 6: Subsidy to the sellers of eggs
(Source: As created by the author)
The increase in supply of eggs is expected to bring the price of the same down in the egg market of the UK.
Consumption preferences and related products- The demand for eggs may also change with the change in the consumption pattern of the people in the UK. For instance, with greater number of people turning vegan, they may shift to other vegetarian options, which may lead to a decrease in demand for the same (Ravindran 2013):
Figure 7: Effects of increase in demand for substitutes of eggs
(Source: As created by the author)
The fall in demand can lead to a fall in the prices of eggs in the United Kingdom.
Conclusion
Thus, the above discussion asserts that the price of eggs in the UK, is subjected to both demand and supply side dynamics. While the demand side factors include those of increase in awareness of healthy consumption, quality of eggs, people opting for vegetarianism, income level and others, the supply side factors consist of cost of feeds, death of birds, government policies of tax and subsidies and others.
In the contemporary global scenario, the countries and societies deal with several problems which can be considered as social evils, having considerable negative implications on the society as a whole and on the populations of the countries. One of such problem is the problem of increasing usage of “recreational” drugs by the population of the countries (Albertson 2014). The assignment, in this context, tries to analyse the impacts of these recreational drugs on the society of the UK from an economic point of view and also tries to analyse the policies which the government of the country can use in order to reduce the consumption of such drugs in the country.
In general, the term “recreational drugs”, is used to describe those substances which are taken for enjoyment or leisure purposes and not for medical purposes. These types of drugs primary include substances like alcohol, caffeine, tobacco and other more illegal drugs. These substances, although give temporary relief and happiness to the people taking it, they have considerable negative and long-term impacts on the people consuming them and on the society in general (Manning 2013).
Figure 8: Effects of recreational drugs
(Source: McKim and Hancock 2012)
As can be seen from the above figure, increased consumption of recreational drugs not only hamper the users (in the aspects of economic loss, health loss, higher medicinal and treatment costs and also loss of overall quality of life) but also has impacts on people who are not direct users (in terms of increased crime rates, tensions in the families of users, economic burden, overall loss of productivity, damages of environment and others) (McKim and Hancock 2012). This phenomenon can be explained with the help of the concept of negative externality in the economic conceptual framework.
In economics, the term “negative externality” refers to the situation where a production or consumption activity hampers third parties, who are not direct involve in the consumption or production processes. This is also known as spill-over effect of consumption or production or external cost (Kaplow 2012). This can be seen to be the scenario in the aspects of consumption of recreational drugs, which can be shown in the following diagrammatic representation:
Figure 9: Presence of negative externalities
(Source: As created by the author)
The diagram above shows that, in case of the consumption of recreational drugs, as the consumption not only affect the users but also the third parties, who are not directly involved in the consumption negatively, so the marginal social cost of consumption of one additional unit of the product is higher than the marginal private cost of consumption of the drug. This in turn implies that the socially efficient level of production (Qs) of the product is supposed to be lower than the free market level production and consumption level (Qe) of the same (Kaplow 2012). This in turn indicates towards the need for policies and steps on part of the government of the country (UK in this case) to reduce the production and consumption of recreational drugs. The main economic policies which the government can take in this aspect are as follows:
Imposing tax on drugs- The government can impose tax on the recreational products, which in turn can help in reducing the supply of the same, the effects being as follows:
Figure 10: Effects of tax on drugs
(Source: As created by the author)
The tax imposition on sellers will lead to a fall in supply which in turn will increase the price of the same, thereby leading to a fall in the consumption of the same (Strang et al. 2012).
Price Flooring- Another economic policy which the government of the country can take in order to reduce the consumption of these drugs is that of price flooring. That, is, the government can fix the minimum price of such products to be charged from the consumers above the market equilibrium:
Figure 11: Imposition of price flooring
(Source: As created by the author)
The price floor imposition or minimum price imposition over equilibrium price level can lead to creation of excess supply and a fall in demand for the same. Due to the creation of excess supply and price rigidity, the producers will be forced to reduce their supply (Stockwell et al. 2012).
Quantitative Restrictions- The consumption of drugs can also be reduced by imposing quantitative restrictions, thereby limiting the supply of the product to a certain extent, the effects of which is as follows:
Figure 12: Imposition of quantitative restrictions
(Source: As created by the author)
The figure above shows that with the imposition of quantitative limits on the production of the drugs (till Q’) can lead to the increase in the equilibrium price to P1 from P0, thereby reducing the demand in the long-run (Heyman 2013).
Conclusion
From the above discussion, it can be concluded that the consumption of recreation drugs can lead to considerable negative externalities for the population of the UK in general and to combat the problem various economic policies like that of imposition of tax on sellers, increasing the minimum price (price floor) and quantitative restrictions can be implemented by the government of the country. Apart from these economic policies the government of the country can also implement policies like that of awareness generation, campaigning against drugs, rehabilitation of the users and similar steps to reduce the overall consumption of recreational drugs in the United Kingdom to a considerable extent.
References
Albertson, T.E., 2014. Recreational drugs of abuse. Clinical reviews in allergy & immunology, 46(1), pp.1-2.
Boland, L.A., 2014. Methodology for a New Microeconomics (Routledge Revivals): The Critical Foundations. Routledge.
Canto, V.A., Joines, D.H. and Laffer, A.B., 2014. Foundations of supply-side economics: Theory and evidence. Academic Press.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Frank, R. and Cartwright, E., 2013. Microeconomics and behaviour. McGraw Hill.
Friedman, M., 2017. Price theory. Routledge.
Hall, R.E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage Learning.
Helmes, K.L. and Schlosser, R., 2013. Dynamic advertising and pricing with constant demand elasticities. Journal of Economic Dynamics and Control, 37(12), pp.2814-2832.
Heyman, G.M., 2013. Quitting drugs: quantitative and qualitative features. Annual Review of Clinical Psychology, 9, pp.29-59.
Kalecki, M., 2013. Theory of economic dynamics. Routledge.
Kaplow, B.L., 2012. Optimal control of externalities in the presence of income taxation. International Economic Review, 53(2), pp.487-509.
Lee, J., Gereffi, G. and Beauvais, J., 2012. Global value chains and agrifood standards: Challenges and possibilities for smallholders in developing countries. Proceedings of the National Academy of Sciences, 109(31), pp.12326-12331.
Manning, P., 2013. Introduction. In Drugs and Popular Culture(pp. 10-13). Willan.
McKim, W.A. and Hancock, S., 2012. Drugs and behavior. Pearson Australia Pty Limited.
Moulin, H., 2014. Cooperative microeconomics: a game-theoretic introduction (Vol. 313). Princeton University Press.
Rader, T., 2014. Theory of microeconomics. Academic Press.
Ravindran, V., 2013. Poultry feed availability and nutrition in developing countries. Poultry development review, pp.60-63.
Ruttan, V. and Thirtle, C., 2014. The role of demand and supply in the generation and diffusion of technical change. Routledge.
Stockwell, T., Auld, M.C., Zhao, J. and Martin, G., 2012. Does minimum pricing reduce alcohol consumption? The experience of a Canadian province. Addiction, 107(5), pp.912-920.
Strang, J., Babor, T., Caulkins, J., Fischer, B., Foxcroft, D. and Humphreys, K., 2012. Drug policy and the public good: evidence for effective interventions. The Lancet, 379(9810), pp.71-83.
Tomek, W.G. and Kaiser, H.M., 2014. Agricultural product prices. Cornell University Press.
Valin, H., Sands, R.D., van der Mensbrugghe, D., Nelson, G.C., Ahammad, H., Blanc, E., Bodirsky, B., Fujimori, S., Hasegawa, T., Havlik, P. and Heyhoe, E., 2014. The future of food demand: understanding differences in global economic models. Agricultural Economics, 45(1), pp.51-67.
Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton & Company.
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