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1). Explain how a market economy compensates for a market surplus. What about a market shortage? How does the relate to laissez-faire. Explain how the market system works to answer the four fundamental economic questions. What are some factors that may cause the market system to not function effectively?

2). Supply and demand analysis is very useful for explaining and predicting equilibrium price and quantity. Very few managers, however, will ever draw supply and demand curves for a real good or service. Nevertheless, they can observe whether a market is in equilibrium. Suppose a hospital manager measures the market for registered nurses (a factor market) and the price (salary) that employers offer is $40,000 per year. The manager observes that there is a shortfall of 1000 nurses in the metro area. What does this say about the equilibrium salary (price) for nurses? What other evidence could a manager look for to infer whether a market is in equilibrium? What are possible causes of the shortage?

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1). Explain how a market economy compensates for a market surplus. What about a market shortage? How does the relate to laissez-faire. Explain how the market system works to answer the four fundamental economic questions. What are some factors that may cause the market system to not function effectively?

The market surplus is soon wiped away because the free interaction of demand and supply leads to a new equilibrium where the prices are lower. The lower prices means more is sold because of the law of demand and less is supplied because of lower prices leading to lower supplies. Liassez-faire is the strict capitalistic free market economy. This free interaction of demand and supply takes place only if there is free market economy. Similarly, if there is market shortage the price will increase leading to lower ...

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Hatim Baxamusa, MBA
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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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