Essay Sample on Economic Markets: Trading Goods & Services

Introduction

The economic market needs as the central environment where people can buy, sell, and trade goods and services. There are several types of economic markets which can be categories in their institutions, infrastructure, procedures, and social relations (Bjornland, 2000, p.580). Markets also vary whenever an interested party requires something that the other party has but only be provided when both parties are satisfied. Activities in this market are said to be protected and to have a conducive environment through legal aspects. However, some markets practice illegal activities and they are called black markets. One major economic market is a physical business market where there are wholesale markets and goods can be supplied to retailers to the final consumers. Also, people can provide labor to business enterprises in exchange for wages.

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The second type is the physical consumer can include retail markets where a farmer or grocery, or fish markets can take place; this can also include public markets, shopping malls, and supermarkets. The other economic markets are non-physical markets where there are no actual goods or services taking place and this includes online services such as e-commerce and broadcasting services such as television and media content. Financial markets where there is the facilitation of liquid assets such as stock markets and bond markets. The main activities in this market include future market analysis, prediction, and insurance marketing.

Factors That Affect Aggregate Demand and Aggregate Supply

Aggregate Demand and Aggregate Supply are two terms that are severally used in economic markets and the national economy. Aggregate supply is the total of goods and services that a country or a company can trade/transact at a particular period (Dutt, 2006, p.320). Aggregate supply can be influenced by aspects which are the short-run aggregate supply, medium run aggregate supply, and the long-run aggregate supply. The key aspects change the price level of products in any given place affecting the way of living. On the other hand, aggregate demand is the economic dimension of the total demand for goods and services demanded by people at a particular price level. Companies and national government take into consideration of aggregate demand when they want to trade to other companies and countries. Several aspects affect both aggregate supply and aggregate demand.

Factors Affecting Aggregate Demand

Aggregate demand can change/shift according to changes in other aspects of the economy or policy of governance. Changes in interest are one of the key factors that affect aggregate demand. The main reason for this change is because the consumer or business will decide whether to buy or sell anything when changes in interest rates favor then (Mankiw at al., 2010, p.184). Changes in interest rates whether falling or raising affects investors, companies, and countries' decisions on business activities. For instance, lower interest rates make the companies and individuals borrow much money from financial institutions which leads to increased spending rates (Werning, 2015, p.24). Conversely, when the rates are higher companies and consumers o not buy much as they are supposed to due to increased cost of borrowing.

Income also affects consumers and companies buying and sells behavior which is the demand for goods and services. When the companies and consumers receive lower income demand for goods and services changes to the countries and companies giving them. Inflation changes affect how consumers buy their products; when they realize there would future rise in prices, they tend to buy more products. Conversely, lower prices in the future will make consumers buy fewer products since prices will favor them in the future (Mio, 2002, p.33).

Factors Affecting Aggregate Supply

Considering the main categories of aggregate supply, there are different ways in which they are both affected. For instance, the short-run aggregate supply is affected by the unit of goods and services affecting the cost of production. The level of labor production affects short-run aggregate supply; this is because when labor increases the production of goods and services also goes higher. Labor wage cost also affected the supply of goods; for instance, higher wage cost occurs when the cost of production is high meaning that fewer goods and services are taken to the market (Reifschneider, 2015, p.100). Conversely, the lower-wage cost tends to make the supply of goods and services increase. Taxes also affect the production of goods and services burden to increase taxes and other costs make the cost of production higher meaning the supply is reduced.

Long-run aggregate supply can be affected by several factors that can be such as technological level, the number of factors, government policies, and quality of factors. For instance, the level of technology affects the supply of goods and services. Advance in technology increases the level of output. Therefore, when the company fails to adapt to new technology then the level of supply changes significantly. Natural resources deposits increase as the number of available factors increase these factors make it possible to extract as access resources that are needed in a country. Factors such as better governance, changes technology, and wages provided. Quality of factors is also another important factor that changes the long-run effects. Quality of factors included aspects of irrigation and fertilization of soil so that more crops can be produced in a country for a particluar period (Fazzari et al., 2013, p.5). Finally, government policies can change the level of goods and services supply too. Better policies can make sure that there is full employment to the consumers and providing education subsidies to increase the literacy level.

Conclusion

Conclusively, aggregate demand and aggregate supply are the main cause of shift other changes in the economy (Rao, 1991, p.265). However, the aggregate demand is regarded as the primary shift in the economy. The main reason why aggregate demand is the main shift od changes is that it can be affected by consumers in foreign and domestic markets. The level of technology and managerial can be regarded as the main changes that make a shift in aggregate supply. Today, the technological level is changing at a very fast pace which means the level of production also increases. Conversely, the demand for goods also increases since the size of the economic markets is large than before; people can order goods from other places in the world (without knowing the physical location).

Reference List

Bjornland, H.C., 2000. The dynamic effects of aggregate demand, supply and oil price shocks-a comparative study. The Manchester School, 68(5), pp.578-607.

Dutt, A.K., 2006. Aggregate demand, aggregate supply, and economic growth. International Review of Applied Economics, 20(3), pp.319-336. https://doi.org/10.1080/02692170600736094

Fazzari, S.M., Ferri, P.E., Greenberg, E.G. and Variato, A.M., 2013. Aggregate demand, instability, and growth. Review of Keynesian Economics, 1(1), pp.1-21.

Mankiw, N.G. and Reis, R., 2010. Imperfect information and aggregate supply. In Handbook of monetary economics (Vol. 3, pp. 183-229). Elsevier. Retrieved from https://link.springer.com/article/10.1057/imfer.2015.1

Mio, H., 2002. Identifying aggregate demand and aggregate supply components of inflation rate: a structural vector autoregression analysis for Japan. Monetary and Economic Studies, 20(1), pp.33-56. Retrieved from https://www.imes.boj.or.jp/english/publication/mes/2002/me20-1-2.pdf

Rao, B.B., 1991. What is the matter with aggregate demand and aggregate supply?. Australian Economic Papers, 30(57), pp.264-277.

Reifschneider, D., Wascher, W. and Wilcox, D., 2015. Aggregate Supply in the United States: recent developments and implications for the conduct of monetary policy. IMF Economic Review, 63(1), pp.71-109.

Werning, I., 2015. Incomplete markets and aggregate demand (No. w21448). National Bureau of Economic Research.