Economics Of The Public Sector: Benefits Of International Trade

Economics of the Public Sector
Name
Course
Economics of the Public Sector
Why Equilibrium of Supply and Demand is Desirable
Demand and supply forces are important in setting the prices of goods and services. It is the forces of demand and supply that determine the quantity of goods produced and the amount consumed. At market equilibrium, the quantity of goods demanded and supplied are equal. The actions of producers and consumers are important in driving markets towards equilibrium prices and quantities (Allos, 2001). Achieving equilibrium is important in ensuring that there is no shortage of goods and services. It is important that the equilibrium prices and quantities are maintained. If the market price falls below the equilibrium price, quantity demanded will increase whereas supply will be low. This will in turn create a shortage. On the other hand, if the price rises above the equilibrium price, there will be a surplus because quantity supplied will be more than quantity demanded (Allos, 2001). Other prices are not sustainable except the equilibrium price. The market should always be at equilibrium to ensure that there are no shortages or surpluses. However, it is difficult for the market to always be in equilibrium state.
Concepts Explanation
Efficiency of Markets
The market is normally considered efficient if it produces maximum amount of goods and services using a given amount of resources, and that it is never possible to increase outputs without increasing inputs (O'sullivan, 2007). Therefore, efficient markets ensure that resources are well utilized. When buyers and sellers have the freedom to determine how they allocate their resources, prices will ensure that those of value and can utilize certain resources to get them (O'sullivan, 2007). Therefore, a good that is more preferred by consumers is expected to be more expensive than that which is less preferred.
Costs of Taxation
Taxation affect both demand and supply. In essence, taxation reduces quantity of goods demanded and supplied. Moreover, taxation drives “market equilibrium prices to levels above those prices attained when no tax obligation is imposed (Robson & Robson, 2005). Equilibrium quantity reduces to levels lower than quantities attained when there is no tax obligation. It is the duty of buyers and/or sellers to pay taxes. Market participants normally share the tax burden. Producers incur greater tax burdens when supply of demand is elastic and supply is inelastic (Robson & Robson, 2005). Where buyers have an alternative, they respond to increase in prices due to taxation by switching to other goods.
Benefits of International Trade
International trade is important to countries in helping them utilize their natural resources well. International trade helps countries in concentrating on producing goods that are best suited for the resources they have at their disposal (Feenstra, 2015). Moreover, international...