Market Failure and Economic Analysis

This assignment analyzes different instances of market failure across various fields like transportation, consumer innovation, and resource scarcity. It delves into economic concepts, modeling techniques, and the social and environmental implications of these failures. Examples include the negative externalities of freight transportation, difficulties in diffusing consumer-developed innovations, and challenges posed by water scarcity and democratic elections in resource management.

Business Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business economics is the main field of economics which undertakes economic theories
and quantitative methods to analyze several economical factors. Business economics also refers
to the relationship of firm with the labor, capital and product market. Besides this, it deals with
several business aspects in terms of management and expansion of business organization. The
present report will discuss demand and supply analysis which has high level of influence upon
prices of products or services (Maryska and Wagner, 2015). This project report will also develop
understanding about the factors which helps in determining the price of gold. It also depicts the
negative externalities which may arise due to the personal use of car. In addition to this, it also
sheds light on the measures which government is required to undertake in order to influence
personal use of car.
MAIN BODY
There are several factors which plays a vital role in determining price of gold. It includes
scarcity of resources as well as demand and supply of the gold. These are the main factors which
have high level of influence upon price of gold. In the present era, scarcity is one of the most
common problems which are faced by the economy. Problem of scarcity arises because resources
are limited and wants or desires of people are unlimited. In addition this, there are many scare
resources whose demand is very high in the market such as gold, petrol etc. Due to this aspect,
some scare resources are more expensive rather than others (Soderbery, 2015). Scarcity of
resources is the main factors which may cause economic problem. Economic problem mainly
consists of what to produce which helps the economy in satisfying needs and wants of the
customers. In addition to this, marketers or government also faces difficulty in allocating labor
and capital. Thus, there are mainly two reasons because of which economic problems arise which
includes unlimited human wants and limited resources to meet their desired needs.
Demand and supply are the main factors which closely impacts the price of gold.
Demand and supply are the backbone of the market influences the purchasing power of
customers. Law of demand and law of supply are the main factors which provides assistance in
determining price of gold. Usually, people desires to purchase the scare goods or services but
there are several factors which impacts the buying decisions of customers. As per the law of
demand, if prices of goods increase then it will negatively affect the demand of goods or
services. On the basis of the rule of law of demand when the price of gold increase then it means
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there is less demand in the market for gold. Due to change in the prices of gold in upward
direction people avoid to invest in the gold. Thus people gradually shifted to the product which
gives higher return to them. Thus, higher the price of the product lower the quantity is demanded
by people. Prices are the main factors due to which high significant decrease is recorded in
purchasing aspect of gold (Ghosh and Shah, 2015). In addition to this, in the international market
people do not have high level of interest in gold. There is no custom or tradition in relation to
wearing of gold ornaments among the international people. Thus, they also avoid buying of gold
and prefer to make investment in the other securities which gives higher return to them. On the
basis of this aspect, financial analyst have analyzed that prices of gold will decrease in near
future to some point due to low demand for gold.
Along with the law of demand, supply is also the main factor which helps in determining
the price of gold. Law of supply significantly differs from the law of demand. Law of supply
states that as prices of the goods or services increases then supply of the product also increases.
Moreover, producers are highly interested in selling their products at higher prices to maximize
their revenue. As prices increases profit margin of the organization also increases. It is the main
cause due to which supply of gold increases in the market but demand for gold decreases. On the
basis of this aspect, it can be stated that demand and supply have inverse relationship and thereby
closely affects the prices of gold (Hendricks, Janzen and Smith, 2015). For instance: Increase in
the prices of gold is the main aspect due to which demand for it gets decreased. In this situation
supply of the gold increases which clearly reflects inverse relationship between demand and
supply factor.
In addition to this, income is also the main factor which affects the demand of gold. Gold
is the subject of high investment so the income aspect closely affects the investment decision of
the person. When income of the people increases then they prefer to invest in gold otherwise
they avoid such kind of investment. Thus, income is also the main factor which closely affects
demand in relation to buying of gold (Demir and et.al, 2015). When demand for gold decreases
then suppliers are required to reduce the price of gold. In addition to this, technological changes
which take place in the environment may cause behind the fluctuating trend in the supply of
gold. For instance: Improvement in the gold mining technology facilitate in increasing supply of
gold in the market.
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Along with it, there are several factors which help in determining price of the gold which are
enumerated below:
 Value of US currency: Dollar is the main currency of the world which plays a vital role in
determining the price of the gold. Thus, when US dollar depreciates then central bank of
the other countries that possess US dollar as a reserve prefers to make investment in
securities such as gold. This aspect clearly states that when US dollar is going to
depreciate then demand for gold also increases. In this situation, prices of gold increases.
Thus, value of US currency is the main element which impacts the price of gold.
 Inflation rates: Economical conditions such as inflation and deflation are also the main
factors which help in setting suitable price for gold. During inflation purchasing power of
the people increases because they have more dispensable income (Allen and Price, 2015).
It is the main cause due to which the prices of gold increases during the period of
inflation. In contrary to this, deflation represents the lower growth and development
aspect of nation. During recession, people avoid to make investment in the gold and other
securities. Therefore, in recession there is no significant increase in the prices of gold.
 International politics and monetary system: Political issues which take place at the
international level causing the increase in the prices of gold. In addition to this, instability
of the monetary system is the also the element due to which prices of gold is increases to
the large extent. Moreover, during this period people prefer to purchase gold and like to
sell the assets. During the period of crisis prices of assets are fallen so large number of
people give priority to gold investment.
 Demand and supply in the market: Demand and supply are the main part of the
economics which affects the prices of gold. For instance: Price of the gold is increases
when supply is lower than the demand. There are mainly three sectors who demands for
gold such as jewellery sector, manufacturing medical industry as well as investment
area. Thus, when demand for gold is high and supply is lower than prices of gold is
increases.
 Supply in the market: Supply of the gold is highly dependent upon the gold mines. In
addition this, sale of existing gold of the financial system is also the main aspect which
facilitates supply of gold in the market. Mine production, recycling process of gold,
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monetary sector sales as well as hedging are the main factors which closely affects the
supply of gold in the financial market (Factors determining gold prices, 2016.).
On the basis this aspect it has been assessed that along demand and supply is the most
important factors which affects the prices of gold. In addition to this, above mentioned factors
also have high level of impact upon the prices of gold.
Negative externalities consist of the occurrence of harmful effect to the third party which
may cause of production or consumption of certain types of goods. For instance: If individual
drive a car then they pollutes the air which is harmful for others who live in the city. The
negative externalities which will turn into the market failure because externalities are tale place
outside the market. In this case, individuals are unable to measure the actual loss or cost incurred
by the other member of the city due to the pollution (de Jong and et.al., 2015). Besides this,
people who make use of personal car do not give any compensation to the third part who
suffered loss due to them. One can measure the cost of externalities in terms of social cost and
social benefits.
Social cost= Private costs + External costs
Externalities only when difference occurs between the social cost and private cost. In
addition to this, social cost is higher than the private cost then negative externalities are take
place in the market. Besides this, if procedures doses not take into consideration the external cost
then negative externalities are also occur at the marketplace. There are several reasons due to
which negative externalities are occurred which may cause of market failure. Negative
externality which may arise due to the personal use of car includes economical as well as
environmental issues. In addition to this, pricing and other infrastructural aspects are also the
main factors which may cause of the negative externalities.
The personal use of car is significantly increasing in the present scenario which may have
high level of negative outcome. Increase in the traffic volume is one of the main aspects which
may cause of negative externalities. In the present era, individual sees the use of car as status
symbol. In addition to this, personal benefits are also the main aspects due to which people make
use of their own car (von Rosenstiel, Heuermann and Hüsig, 2015). It is the main aspect due to
which traffic volume is highly increased in today's world. In addition to this, people prefer to
drive at high speed which badly impacts the road or infrastructure. This aspect clearly reflects the
aspect of negative externalities. Moreover, damaged road may also cause of high rate of
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accidents. Along with it, increase in the number of vehicle creates inconvenience from the
different perspectives such as parking, securities etc. Usually people who make use of car park
their vehicle in the unmanaged way which creates difficulty in front of the other persons.
Further, there is the high level of competition in the automobile industry. In the present scenario,
people have desire to purchase the high tech cars. Now a day’s people are ready to give extra
prices for the features, design and luxurious aspects of the car. This aspect encourages
automobile companies to manufacture and introduce the car with the attractive designs (Fike and
Gwartney, 2015). It attracts individual to buy the new model and thereby shows increasing trend
in the personal use of cars. All these aspects shows increasing trend towards the personal use of
car and there by turn into the negative externalities.
Besides this, there are several environmental issues are also arises due to the increasing
trend towards the personal use of cars. Now, each family member prefers convenience which is
the main cause behind the high use of personal cars. Due to this aspect environment is got
polluted and there by turn into the negative externalities. Fuel and gases are the essential
elements which are required to operate the cars. Fuels and gases are the main elements which
emits the harmful gases such nitrogen and sulfur dioxide (Garcia and Pargament, 2015). Such
gases are more harmful for the environment and negatively impact the health of the people.
Along with it, result of the research also shows that increasing consumption of car has major
impact upon environmental aspects or conditions.
Increasing use of car which may cause of negative externalities also place impact upon
economical aspects such pricing policies, regulations etc. By taking into consideration the
increasing consumption of car manufactures of automobile companies have started to charge
high prices for the cars. Through this, they are able to increase their profitability aspects in the
dynamic business arena. This aspect closely affects the standard of living of lower segment
people. Individual who belongs to lower income group are unable to purchase the cars. Thus, it
negative affects standard of living of the society. In addition to this, countries also make import
of cars to meet the demand of the customers of their nations. This aspect is also sometimes the
cause of deficit in the balance of payment.
Along with it, there are several factors which may result into the negative externalities.
Increasing consumption of car induces car manufacture to produce the car in bulk and there by
enjoys the economies of scale. Nevertheless, car manufactures throw the wastage material in the
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river and other place which also polluted the environment, this aspect also affects the health of
people, animal and other environmental aspects. In addition to this, there is significant increase
in the percentage of death rate due to accidental issues. In the present era, youngsters drive with
the high speed which may cause of accidents. When people drive the car with high speed then
they are unable to make control over their driving which will turn into accidents (Gatiso, Vollan
and Nuppenau, 2015). Besides this, accidents have also damaged the road which may increase
the chances of more accidents. Along with it, in order to maintain the developmental aspects
government requires to re construct the roads which creates financial burden upon them. On the
basis of all the above mentioned aspects it can be assessed that increasing consumption of the
personal cars are the main reason of the negative externalities.
In order to accommodate or change such negative externalities government as well as
regulatory bodies needs to frame several rules and regulations. Government requires undertaking
the following measures which helps them in reducing the percentage of negative externalities are
enumerated below:
1. By imposing high tax and tariffs upon the automobile companies as well as customers
government can limits the use of cars.
2. In addition to this, by setting the quota to which country is able to import the cars
government can easily balance the consumption of cars. Further, by introducing high
custom duties on import of cars government can limits the increasing consumption of
cars. Through this, government is able to maintain the balance of payment in an effective
manner and there by reduces the negative externalities.
3. Besides this, by charging the high tool taxes government can reduce the number of trips.
This aspect provides assistance to government in reducing the air pollution. Through this,
government is able to build and maintain healthy environment.
4. Along with it, by making fuel economical policies government can reduce the negative
externalities more effectively. As per this policy automobile companies require to make
use of effective parts which does not pollute the air. Automobile manufacture needs to
make use of eco friendly parts which helps in developing the healthy environment.
5. Further, by restricting the use of high fuel emitted cars government can decrease the
problem of negative externalities to the large extent.
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6. Government can also overcome the problem of negative externalities by developing the
awareness among care users. By making advertisement in relation to negative impact of
the high use of car upon the health and safety aspects government can limits the personal
use of cars.
By undertaking all the above mentioned measures government is able to influence the
personal use of cars to the large extent. Through this, private drivers are able to accommodate all
the above mentioned negative externalities.
CONCLUSION
From this project report it has been concluded that demand and supply are the main
factors which closely impact the prices of gold. In addition to this, value of currency, economical
conditions, international politics and monetary system risks are the main cause due to these
prices of gold are fluctuates or increases. Besides this, it can be inferred that car which are used
for personal use creates several negative externalities at marketplace. It can be seen in the report
that government has undertaken various effective measures which may result into the negative
externalities.
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REFERENCES
Books and Journals
Allen, D.W. and Price, J., 2015. Same-Sex Marriage and Negative Externalities: A Critique,
Replication, and Correction of Langbein and Yost.Scholarly Comments on Academic
Economics. 12(2). pp.142-160.
de Jong, J.P. and et.al., 2015. Market failure in the diffusion of consumer-developed innovations:
Patterns in Finland. Research Policy. 44(10). pp.1856-1865.
Demir, E. and et.al., 2015. A selected review on the negative externalities of the freight
transportation: Modeling and pricing. Transportation Research Part E: Logistics and
Transportation Review. 77. pp.95-114.
Fike, R. and Gwartney, J., 2015. Public Choice, Market Failure, and Government Failure in
Principles Textbooks. The Journal of Economic Education, 46(2), pp.207-218.
Garcia, X. and Pargament, D., 2015. Reusing wastewater to cope with water scarcity: Economic,
social and environmental considerations for decision-making. Resources, Conservation
and Recycling. 101. pp.154-166.
Gatiso, T.T., Vollan, B. and Nuppenau, E.A., 2015. Resource scarcity and democratic elections
in commons dilemmas: An experiment on forest use in Ethiopia. Ecological
Economics. 114. pp.199-207.
Ghosh, D. and Shah, J., 2015. Supply chain analysis under green sensitive consumer demand and
cost sharing contract. International Journal of Production Economics. 164. pp.319-329.
Hendricks, N.P., Janzen, J.P. and Smith, A., 2015. Futures Prices in Supply Analysis: Are
Instrumental Variables Necessary?. American Journal of Agricultural Economics. 97(1).
pp.22-39.
Maryska, M. and Wagner, J., 2015. Reference model of business informatics economics
management. Journal of Business Economics and Management.16(3). pp.621-637.
Soderbery, A., 2015. Estimating import supply and demand elasticities: Analysis and
implications. Journal of International Economics. 96(1). pp.1-17.
von Rosenstiel, D.P., Heuermann, D.F. and Hüsig, S., 2015. Why has the introduction of natural
gas vehicles failed in Germany?—Lessons on the role of market failure in markets for
alternative fuel vehicles. Energy Policy. 78. pp.91-101.
Online
Factors determining gold prices. 2016. [pdf]. Available through:
<http://www.bangkokbank.com/BangkokBankThai/Documents/Site%20Documents/
Mutual%20Funds/Article15_En.pdf>. [Accessed on 7th January 2016].
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