2.7 Application to particular markets

Question 1

What is an agricultural market?

Answer 1

Prone to disequilibrium and random shifts in the supply curve year by year, often caused by climate factors.

This leads to unacceptable fluctuations in prices and results in government intervention.

Question 2

What factors cause short run change in aggrecultural markets?

Answer 2

Changes in the harvest

Question 3

Why is the market for metals similar to aggrecultural markets?

Answer 3

It takes years to open new mines

Sudden increases in demand cannot be met

Question 4

What is speculative demand?

Answer 4

People buy and sell commodities and never intend to use them
When people believe the price of something will rise they will step in a buy it
If demand is high enough the price will be driven up

Question 5

What are the conventions of the market for second hand cars? (6)

Answer 5

A car is a consumer durable good

A new car typically lasts about 15 years

Unlike a house (ultimate durable good)

Cars lose value as soon as they are purchased

There are high quality second hand cars, and second hand cars with defects (lemons)

Asymmetric information

Question 6

What are the conventions of the housing market? (4)

Answer 6

Long run trend for rising house prices in the UK

Ignoring short term booms and busts

Both the demand and supply for housing has increased (shifts rightward)

Demand has increased faster than supply