Supply and Demand in a Global Market – Answered

Answer the following questions using examples and applications from the readings.  Justify your answers using economic concepts and ideas as they apply. Each response should be between 100-200 words.

Questions:

1. The demand for labor is said to be a ‘derived’ demand.  What is the meaning of a derived demand? How does this concept help to determine the demand for labor?
2. What are some of the factors that determine the supply of labor in a market? What significant factors have changed the supply of labor over the last twenty years?
3.  How does a firm determine its prices and the quantity of labor required in the resource market during a specific period?
4.  Why do income inequalities exist?  How are income inequalities measured? How have income inequalities changed from 1980 to the present?
5. What is the role of the U.S. government, in terms of dealing with the problem of income inequalities?  What are the arguments, for and against, government involvement in this area?
6. Why do nations trade?  What is meant by the concept of “Comparative Advantage”?  Could a nation be better off economically, if it practiced an isolation policy?
7. The United States has had a significant trade imbalance for several years.  What are the problems associated with having a negative trade balance?  What can be done to correct the imbalance?
8. How are exchange rates determined?  What is the significance of currency devaluations to the home country?  To other countries?

SAMPLE ANSWER

Economic Concepts

Derived demand can be defined as the demand that does occurs for a factor of production as a result of an existing demand for an intermediate goods or services. For instance, if college students decide to enroll in a given institution to be taught, it will be upto that institution to employ staff members who will then teach the students. Therefore such institution will increase their staff capacity as a result of the demand for education by the students. Derived labor cncept plays a significant role in the firms demand for labor. If for instance the firms output has a high demand, then the firm will employ more workers so as to boost their production capacity. On the flipside, if the demand for the firms’ products falls, the firm will demand very little labor, thereby dismissing off some workers (Cliff notes).

Labor supply can be defined as the number of hours that the workers are willing and able to supply within certain wage limits. One of the factors that affect labor supply in the market is the real wages. When the wages are high, the labor supply tends to be high. On the contrary, low wages reduces the labor supply (Steven, 1997). Additionally, the issue of net migration of labor does affect the labor supply within various industries of the economy. Finally, there is barrier to entry through placement of minimum entry requirements that bars non-qualified workers from making entry into certain professions (Riley, 2014).

There are certain significant factors that have affected the supply of labor over the past twenty years. One of them includes the supply of low skilled workers that is created as a result of attainment of low levels of education. Furthermore, the widening gap between the blacks and whites salary ranges has played a role in affecting labor supply.

For a firm to set the prices for its products, it first have to know the direct costs associated with making the product, plus the overhead costs involved in the process. Additionally, it has to know the non-manufacturing costs involved in the process. Finally, it has to set a realistic target of the profits it desires to make. On the other hand, the demand for labor will remain to be derived just as have been mentioned above. The amount of labor required will entirely depend on the demand for the products manufactured by the firm. The higher the demand for the products, the higher the demand for labor will be.

Income inequality is a measure of income distribution among households. The measure tends to create a comparison in income gaps between various households within a certain region or a certain country. Income inequalities exist due to the difference in skills of the workers, and as a result of the difference in education attainment of the workers. Income inequalities have changed over the years, with the current levels showing a high level of disparity. The current statistics shows that seven out of every twelve counties currently have a lower family median income as compared to what existed in the 1980s. The United States government can reduce inequalities through initiation of programs such as the introduction of social insurance so as to protect the citizens against risks of lowered incomes.

Countries trade with each other when the specific countries do not have the capacity to satisfy their own needs. When a country produces surplus goods, they trade with other countries in exchange of the goods they do not have, or that which they have a shortage. Economically, no sinhle country can be better off if it practiced isolation policy. Such a country will always run into deficits and therefore fail to improve on its economic prowess.

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