By J. Harvey (auth.)
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Extra info for Mastering Economics
Conditions of demand may change in a short period of time through: (1) A CHANGE IN THE PRICE OF OTHER GOODS Goods compete for our limited income and are thus, to some extent, substitutes for each other. When the prices of other goods fall, the particular good under discussion becomes relatively dearer and therefore less of it is demanded. When the prices of other goods rise, it becomes relatively cheaper, and so more of it is demanded. But the effect on the demand for a particular good is more pronounced when the price of a close substitute changes.
Foreign currency, gold, base metals, raw cotton and other goods which can be accurately described are dealt in over the telephone. However, in studying the market economy it is essential to understand how price is determined. Since this is done in the market, we can define the market simply as all those buyers and sellers of a good who influence its price. Within the market there is a tendency for the same price, allowing for costs of transport, to be established for the same commodity. (c) World markets Today modern transport allows many commodities to have a world market - a price change in one part of the world affects the price in the rest of the world.
To reduce the price of coal it could give the producer, the National Coal Board, or consumers, such as the Central Electricity Generating Board, a subsidy. In contrast, a high tax could be imposed on the producers or consumers of oil. 13. Assume the NCB is given a subsidy. This allows more coal to be supplied at all prices, the supply curve moving to 8 1 . Price falls to OP 1 and demand expands by MM 1 . On the other hand, suppose a tax is levied on consumers of oil. Their demand is reduced to allow for the tax, the curve falling to DI .