Aggregate Demand And Aggregate Supply

Published Date: 02 Nov 2017

Introduction:

This paper will discuss the market mechanism. Market mechanism is the procedure through which buyers and sellers act in their own welfare and establish a market price of a product and decide the quantity of a product that is to be exchanged in a market. Buyers or the consumers attempt to advance their happiness by obtaining goods and services for utilization at the lowest probable prices. Sellers or the producers seek out to receive profits by selling the products and services at the maximum possible prices. Nevertheless, in a competitive marketplace no buyers or sellers can manage the market price. In addition, both buyers and sellers have to contain good information concerning applicable alternatives, and they have to be able to buy or sell in a diversity of geologically divided markets if the market result is to be competent. A market that convinces some certain characteristics has many buyers and sellers, trader mobility and good information, in which comparatively identical goods are traded, is supposed to be competitive. In such markets, price is decided by the communication of buyers and sellers, and the competitive procedure of price determination set up the market equilibrium. We will talk about different types of markets that are present in the UAE like the fund market, capital market and the predial market. Then we will analyze the demand and supply of Oil in UAE and in the end, we will see different factors that can affect the aggregate demand and aggregate supply. (Studymode)

Markets in UAE:

The types of markets in the UAE according to the statement are as follows:

Fund market:

Fund market is very particular about the issuing and exchanges of short term economic tools which are capable to switch to financial liquidity and the day of maturity pay facility to these papers which are the most useful during three months or to a whole year. Fund deposits are a very good method for small risks investments to attain regular revenue and keeping the major value to money. Fund market in UAE faces a huge crisis during worldwide financial crisis and this appeal is from the international finance to find an immediate solution to Dubai national c loans that must to conquer this entire crisis and rearrange it. The association connecting the Emirate DH and the American dollar presented average steadiness in Dubai. (Business Teacher, 2011)

Capital market:

The stock exchange has begun more than 100 years in the past all over the world. It has launched the name of financial corporations which are listed in stock table. There are plenty of stocks corporations in the world such as. Dubai stock exchange started in 2004 in Dubai international capital center, the stocks, investments boxes and documents are exchanged in UAE which use the liquidity system that used in the European stock net.

Predial markets:

Predial markets make personal assessments because there are no central markets to predial flow despite of the use of predial exchange. Predial Dubai markets are very attractive to the holder and selling that are raised in predial market in Dubai at the rate of %0.7 at end of year 2009. It stable throughout the first part of 2010, there entered 30000 housing units to UAE market in 2010. (Business Teacher, 2011)

The UAE Government has worked to make a free zone in the Dubai Airport and in the other areas in Jebel Ali to assist the investments in comparatively simple measures. It wants to open a big business in free zones of Dubai, because it is very appropriate for companies that desire to use Dubai as a mechanized and regional distribution location. Because the majority of the sales in Dubai will go outside of the country and most significant objective of setting up Dubai's free zones is that, it wants to contribute to the growth and development processes. The features of this area include 100 percent foreign property; it is excluding from all import duties, it assures rotating the capital and profits overseas. It assures free system taxes which are applied in UAE as well as to assurance of replenish the renting contract for the next 15 years. It will give plenty of cheap energy and all the benefits of employment that will offer a high work competition with experienced employees. It will also encourage employment and will reduce unemployment to a great extent.

Aggregate Demand & Aggregate Supply:

The product that I have chosen is the Aggregate Demand and Aggregate supply of the Oil in UAE.

The Aggregate Supply of the crude oil, non-conventional oils and the NGL in the individual Organization of Economic Corporation and Development and in the non- Organization of Economic Corporation and Development countries, for example Europe, North America and Pacific are thousands of barrels per day.

The Aggregate Demand for the crude oil is also thousands of barrels per day and the country forecast for every 6-18 months for the crude oil.

The monthly demand and supply of the balances for the individual Organization of Economic Corporation and Development countries that presents the imports, indigenous production, exports, refinery intake, stock changes, international marine bunkers and the output are also in thousands of metric tons. All the data provides the different numerical figures.

The comprehensive coverage of monthly of the government controlled stock and of the industries that covers the crude oil, feedstock, NGL, motor gasoline, residual fuel oil and the middle distillates are thousands of barrels per day. (Sparknotes)

Factors that affect Aggregate Demand and Aggregate Supply:

The aggregate supply curve illustrates that the relationship in the overall price level of the nation, and the quantity of products and services produced by the suppliers of the nation. The curve in the diagram is upward sloping in the short run and it is vertical in the long run.

asadgraph1.gif

Source: (Sparknotes)

Net investments and the technology changes that give away productivity development and bring positive institutional modifications can add to both short-run and long-run aggregate supply. Institutional changes such as the condition of public goods at low down cost, it increase financial efficiency and cause aggregate supply curves to transfer to the right.

There are some of the changes that can alter short-run aggregate supply, at the same time, long-run aggregate supply remain the same. Some of the factors are given below:

Supply Shocks are abrupt surprise happenings that can increase or decrease the output on a very temporary level. Examples of the Supply Shock can include strangely bad or good weather and the impact from unexpected military deeds.

Resource Price Changes can also alter the short run aggregate supply. Unless and until the price change is a sign of differences in long-term supply, the long run aggregate supply is not affected.

The Changes that are Expected for Inflation is also a factor that can affect the aggregate supply. If the suppliers look forward to products to sell at too higher prices in the future, then there is much likely that their enthusiasm to sell in the present time period will be condensed and the short-run aggregate supply will shift to left. (InvestoPedia)

The aggregate demand curve represents several price levels, the quantity of products and services that are produced locally that the businesses, consumers, governments and foreigners are enthusiastic to purchase throughout the period of apprehension. The demand curve slopes downward to the right that indicates that the price levels will decrease or increase or more or less goods and services are demanded. The factors that can affect the aggregate demand are as follows:

Interest Rate Changes can impact the capital product decisions that are made by the individual customer and by the businesses. The lower interest rates will be, there will be lower costs of most important products such as cars, home appliances and houses, all these will increase the business resources and the project expenditures because long-term costs of the investments of the projects will be reduced. The aggregate demand curve will shift towards down, to the right. Higher the interest rates will be, the capital products will be comparatively more expensive and it will in turn cause the aggregate demand curve to shift upwards, to the very left. (InvestoPedia)

Changes in Expectations can also affect the aggregated demand. If the business and household is positive about the outlook of the economy, then they will consider buying large items and will make new investments, this will add to aggregate demand.

The Wealth Effect can affect in a way that if the real household wealth will increases or decrease, then the aggregate demand will also increase decrease.

Changes in Income of Foreigners, when the income of the foreigners change increases/decrease then aggregate demand for locally produced products and services would also increase/decrease.