market dynamics

Question 1

What can cause supply and demand imbalances? [2]

Answer 1

• Supply shocks
• Demand surges

Question 2

How can supply shocks lead to imbalances?

Answer 2

Unexpected disruptions such as natural disasters or geopolitical events, can reduce supply, increasing prices and creating tension among consumers and producers.

E.g. sudden increase in oil prices due to geopolitical tensions may lead to higher production costs and consumer discontent.

Question 3

How can demand surges lead to imbalances?

Answer 3

Rapid increases in demand for a product, such as during a pandemic can lead to price spikes affordability issues.

E.g. COVID-19 caused demand for medical supplies to exceed supply, leading to global competition and conflicts over resource allocation.

Question 4

How can the price mechanism cause conflict?

Answer 4

It allocated resources through changes in prices, which can create winners and losers, leading to conflicts.

E.g. housing markets often experience conflicts between landlord and tenants.

Question 5

How can competition and market structures cause conflicts?

Answer 5

• Monopoly power: firms with significant market power may exploit consumers by charging high prices or limiting choices, leading to public outcry and calls for regulation. E.g. dominance of big tech companies such as Google and Amazon has led to antitrust investigations + conflicts over market fairness
• Oligopolies and Cartels: collusion among a few dominant firms can lead to higher prices and reduced competition, harming consumers and smaller competitors. E.g. OPEC’s control over oil production has caused conflicts between oil-producing and oil-importing nations.