Economic Essay Example | Topics and Well Written Essays - 1250 words - 5

Economic - Essay Example This has caused increase in demand for Iron-ore to carry out the firms production and produce the resulting output. Price is derived by the crossing of supply and demand. (Figure 3) The resultant market price is dependent upon both of these basic components of a market. A transaction of goods or services will occur when so ever buyers and sellers can agree on a certain price. When a transaction occurs, the agreed upon price is called the "market clearing price† or "equilibrium price". As the population of China has grown, the demand for minerals and metals has risen. This has pushed the price of iron ore (and complementary products) up and also spurred the development of iron, accelerating the quantity of iron supplied as well. We can see the demand increase in Figure 1 below, that represents an increase in the demand of iron-ore. In the figure, supply and demand have been short formed as S and D. Demand begins at D1 and is moves to D2 provided that supply remains the same. We see that the equilibrium price even increases from p1 to p2, and the quantity moves from q1 to q2. The figure clearly shows that increase in demand for iron ore would clearly cause an increase in price. As the quantity of iron ore increases so would the resultant price provided supply remains constant. In order to meet the increasing demand the quantity of iron ore production would even have to be increased. An increase in supply results about from a decrease in the marginal cost as like the marginal cost of production. As a result, an increased in production is represented by a line to the right on the supply and demand graph. The effects of an increase in production are illustrated in Figure 2. The supply line goes from S1 to S2 that represents a lesser marginal cost. Moreover in this case, the quantity also rises from q1 to q2 and price falls from p1to p2. As the demand of