Section 1. Past and present We spent a lot of time deriving the supply and deman

Question

Section 1. Past and present

We spent a lot of time deriving the supply and demand curves for a given market, largely following the neo-classical rendering.

a) Briefly restate how a market equilibrium is generated (how the demand and supply curve are derived and why a market may tend to hover at the intersection of the two curves).

b) Do you feel that theory works for commodities markets in general (i.e. that it is a good enough representation to allow useful analysis)? What about labour markets? Is there any difference between labour and commodities that would make the theory a better representation in one case than the other?

Explanation / Answer

a))a market equilibrium is generated when the demand curve and supply curve intersect each other . that is at this point both demand and supply are equal . demand curve is prepared based on the commodities demanded at a particular price similarly supply is the quantity supplied at a particular price .at equilibrium there are no new sellers and no new customers in the market . demand and supply both are stagnant . b)the above theory is true for general markets but not for labour . in case of labour market quantity demanded and supplied to be equal situation is really difficult as human forces are affected by many adverse conditions .for labours the paid wages totally depend on what the supplier thinks it to be , the labourer has a very negligible influence over it .

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