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Homework answers / question archive / These factors can be summarized below: (1) Change in taste or fashion: If the consumer's tastes have changed or if the commodity has gone out of fashion, the price falls
These factors can be summarized below: (1) Change in taste or fashion: If the consumer's tastes have changed or if the commodity has gone out of fashion, the price falls. (ii) Change in income: If the consumer's income rises, demand may increase even with no change in price. Discovery of substitute: Discovery of an alternate substitute may cause demand to fall even with no change or decrease in price. ( Change in prices of substitutes: A decrease in prices of other goods may cause a decrease in demand even with decrease or no change in price. ) Change in the pricelsupply of complementary goods: If the price of one of the complementary goods changes, the demand of the other is also changed. (vi) Change in weather: Demand of a good may change due to an expected change in the weather without a change in price. (vii) Change in population: Demand of a product may increase due to increase in population without a corresponding change in price. (viii) Future expectations: The demand of a product may increase due to future expectation of an increase in price, even though there is no change in current price.
(b) In the mixed economic system, the state has an important role to play which is as follows: Distribution of income: Corrects the unequal distribution of income and wealth that exists under free market system. For that purpose, taxation, duties, subsidies etc. are used. Price control Restrains the monopolies that may exploit consumers by charging exorbitant prices. Price monitoring, price fixation, etc. are used. Production of needed goods/demerit goods: Provide commodities that private sector is unable to supply due to the absence of appropriate profitability e.g. state may establish food processing units, price floors etc. Control on economy Manages and controls the levels of inflation, unemployment, trade balance and economic growth to ensure economic stability. By way of monitory and fiscal policies the state intervenes in the economic activities of the country.
1.2 PRODUCTION POSSIBILITY CURVE The resources at the disposal of an economy are limited whereas the requirements are unlimited. A country therefore has to try to choose the best possible combination of goods and services that can be produced from the available resources, depending upon its economic needs. The production possibility curve depicts all possible combinations. The diagram is shown below: Y H 100 Quantity of Y produced 60 ? 60 90 Quantity of X produced For the purpose of simplicity the curve is based on two products only i.e. X and Y and we assume that all the resources are allocated for producing the two goods only. The curve indicates that the economy can produce a number of combinations such as 60 units of X and 100 units of Y or 90 units of X and 60 units of Y and so on.
The cost of an item measured in terms of the alternatives forgone is called its opportunity cost. Thus, if an economy produces 60 units of X and 100 units of Y (point H) instead of producing 90 units of X and 60 units of Y (point J), then the opportunity cost of producing (100-60) more units of Y would be the lost production of (90-60) units of X. If the economy produces lesser quantities, it would not be utilizing the full resources whereas quantities in excess of those represented by the curve cannot be produced on account of limited resources. ECONOMIC GROWTH (a) (i) the rate at which the gross domestic product per head of population is growing in real terms, i.e. after allowing for the distorting effects of inflation. (ii) welfare (b) (i) production possibility (ii) economic growth (ii) some degree of inefficiency in the use of resources, or a degree of unemployment (iv) unattainable (v) 13 million units of capital
(c) Any one of the following main factors: capital investment leading to the growth of the capital stock technological progress enabling a greater level of output from a given level of inputs research and development activity enabling technological progress to occur education and training systems that encourage greater levels of productivity in the labour force adequate investment in the infrastructure of the economy (d) (0) false (ii) false (iii) true (iv) true ISLAMIC ECONOMIC SYSTEM (a) Its main influence is how resources are distributed throughout the economy, rather than the "Science" of improving manufacturing etc. This has led to a number of features within the system: State ownership: There is no ban on the state owning an enterprise, however a free market still exists where entrepreneurs can profit so long as they abide by the other rules of the Islamic economic system. Practising of moderation: Islam aims for an equitable distribution of resources, and so the population is taught to share wealth where they can. Prohibition of charging interest: It is forbidden for a lending party to earn interest from a transaction without taking on as much risk. Instead there is a system whereby both parties must gain or lose from the transaction. 1.4
Earnings: must only be made from goods which are allowed in Islamic teachings. Ban on hoarding of wealth: As resources should be utilised for a good cause, rather than remaining in private possession. Zakat: This is a financial tax on the wealthy in order to aid the poorer in society. (b) Below is an idea for some which could be used Similarities: Entrepreneurs can earn profit Efficiencies are still sought after Acceptable for some members of society to be richer than others Differences: Interest not being charged on transactions Explicit attitude towards hoarding wealth General influence of religion in the operations of an economic system
Demand refers to the desire of an individual to purchase a product or a service given, his ability to be able to make payments to purchase the same.
The question details the determinants of demand. Primarily however, it is to be remembered that the biggest determinant of demand is the price of the product across all normal goods. As price rises, the capacity of an individual to purchase the product declines and vice versa.
The other determinants of demand described in the question are as follows: -
1) Income pattern of the consumer. I.e. with rise in income, the availability of funds for the person increase which leads to them being able to purchase more goods and services than they earlier would have.
2) Change in preferences and taste of a consumer, wherein he desires to purchase the product in larger quantities which may lead to an increase in demand, or he may choose to consume lesser which leads to the demand falling substantially as the customers taste towards the product changes.
3) Substitutes and Substitute Pricing has been given as two different options, substitutes refer to goods that can be purchase in lieu of the product in question for example, tea can be consumed rather than coffee to a certain extent, therefore being called a substitute. As price of tea decreases, the demand for coffee decreases, thus making them inversely related to one another.
4) Similarly, complimentary products also have been listed as an example, wherein the decline in demand for one has an impact on others as well. For example, as the demand for petrol falls, the demand for cars also fall sharply.
5) Other topics include the like of sudden changes in population, which may lead to a spike or a sharp decline in decline as the case maybe, future expectations of a sale which may decrease current demand or other similar options such as climate change which may reduce or increase the demand due to unsteady or favourable conditions for purchase.
B)
When deciding on what amount of control there would be in the market, there are 3 primary approaches to the same. These are capitalist economies wherein the forces of demand and supply decide which goods and services would be produced in the economy and how they would be distributed, socialist economies wherein the decisions are taken by the government for these, and mixed economies, wherein both the government as well as private players play an important role in deciding what goods and services would be produced.
In the case study, the concept of a mixed economy has been described and its control of the government has been further stated. In this, the government directly controls some share of the market, and it has the following functions: -
1) Redistribution of income, wherein it collects taxes and provides facilities such as healthcare, education etc. to the poor.
2) Price control whereby it reduces prices of critical items such as food items to ensure that access can be given to those sections of the society which do not have sufficient money.
3) Production of goods needed by the society at large as well as direct control of the economy by economic policies on variables such as taxation, unemployment levels etc.
1.2)
The case here in hand highlights the fact, that resources for a country are limited, and within those limited resources only a few goods and services may be produced.
A production possibility curve has been depicted wherein two goods have been placed on X and Y axis, and the concept of opportunity cost has been described wherein different combinations of goods X and Y can be produced and to increase the production of one good the other has to be sacrificed in return. This is because a country cannot increase production of one good without foregoing the other given that its resources such as land, labour etc. are all limited.
Therefore, in the graph, as the country moves towards production of 30 more X goods, it has to sacrifice 40 quantity of Y goods.
1.4)
This case, tries to explain the similarities and differences between the Islamic system of economics, with that of the contemporary markets
In the Islamic economics, the governments are allowed to do business but their aim must remain public welfare. Also, profits for private as well as government enterprises are allowed which are key similarities.
The distinction however is the fact that it does not allow for interest to be earnt on transactions as well as there is a prohibition for earning interest.
