Supply Demand and Government Policy, Essay Example

While the market is favored by allowing the balance of supply and demand to generate its overall trade, there are various issues in which the government has had to introduce its own policies in order to maintain the stability of the economy.  These issues include not only price, wage, and rent control, but also the implementation of tax codes in order to balance out the natural fluctuations in the market as well as stem any unfair price gouging or other similar practices.  These implementations can not only help to balance out the market’s stability, but can also clear the economic landscape of institutions that are built on the imbalances that are present.

In a completely unregulated market, it is thought that market fluctuations would be inherently detrimental to the stability of the economy. While a free market is important for growth, this can easily become unstable, and begin to favor one side of the line or other, being buyer or seller.  The government regulations that are put into place are designed to balance out these fluctuations in an effort to create a more stable framework for the economy.  Government policies can be a major factor in effecting the balance of supply and demand, which in turn has an impact upon the basic makeup of the economy.

Demand for goods can be increased by raising the wages that individuals make.  Furthermore, by lowering the price of certain goods the demand for them can be increased, while increasing their price leads to a lower demand.  Rent control holds an overall effect on the market.  By lowering prices on rent, both businesses and individuals will have a higher amount of money to spend on other goods.  However, this decreases the market value of the homes, as well as increases the demands, which has an effect on the market as well.  This shows how these aspects are in constant flux with one another, and the importance of maintaining their balance.

By putting forth these tax codes, the government policies can determine that various elasticity of market variables.  This is a measure of how the change in one variable effects another.  For example, how much lowering the price of goods increases the amount that are sold.  The more inelastic the market behaves, the more the taxation will fall on the consumer.  The more elastic, the more it will fall towards the end of the economic producers.  This distinction is an important tool in the government’s ability to implement policies and effect the principles of supply and demand.  By understanding the ideas associated with elasticity, informed decisions can be made concerning how to implement economic policies.

Through the implementation of policies that lower the cost of living, individuals can attain a higher economic standard, and no longer rely upon the needs of negative economic institutions such as lower tier lending agencies as well as complex mortgage and financing practices.  By maintaining the balance of supply and demand through the implementation of various policies, governments can help to curb the growth of institutions that rely upon economic turmoil in order to maintain their business.  By clearing the economic landscape of these institutions, the government can help to maintain a more solid foundation for the economic growth of the country.

Works Cited

Carrns, Ann. Consumers Warned about Pitfalls of Online Payday Loans. Your Money

Advisor. New York Times. http://www.nytimes.com/2014/10/03/your-money/consumers-warned-about-pitfalls-of-online-payday-loans.html?_r=0. 2014.