The decisions of a buyer are influenced by the need or desire and what the market has provided. There are various things that influence a consumer to buy a particular product for example, price, taste and preferences, advertisement and many others. Some influencers such as advertisement may make a customer make a wrong choice when buying a commodity. To protect the consumer from making the wrong choice the government intervenes in the market through price controls such as price floors and price ceilings, through standardization of products and many others. There are also acts such as weights acts which makes sure that the consumer has bought the right quantity of a product. This makes sure that the consumers are not exploited and that they end up buying the right commodity. By so doing the government intervenes in the market. The economies which operate under free market are the best because there are no interventions or any regulation by the state. The only thing that the state does under the free market system is to enforce on taxes, engage in private contracts and any property ownership.
Mostly, consumer encounter tradeoffs when making their purchase decisions which are mostly affected by the budget through they have a wide range of desires. This is referred to as the budget constraints. A consumer may find one interested in two types of commodity bundles and the satisfaction which she will get is the same from both bundles. When this is represented graphically it is known as indifference curve. This indifference curve does have a slope which shows how a consumer wants to trade off a good with another one. This can also be called marginal rate of substitution. When a consumer is making a choice concerning a commodity one will tend to see that most of them will pick those commodities that are high in the indifference curves. Those which are lower in the curve result to dissatisfaction. Therefore an indifference curve will assist his consumers to make the right choice of a product.
The amount of production within the economy is influenced by the forces of demand and supply. The supplier in the market will decide the amount to produce depending on the demand in the market. This also affects prices in that if the supply of a commodity is very high the prices will be lowered so that demand will be in the same level with supply. A market that is influenced by the forces of demand and supply is always in equilibrium. Therefore the forces of demand and supply act on any shortage or surplus and makes sure that the market is always in equilibrium. In case there is excess demand of a commodity, price will increase and as a result the suppliers will supply more until demand is the same with supply.
There are various markets within an economy and they work differently. Some markets should be encouraged in the economy over others, for example, a competitive market where there are no restrictions of entry and exit, consumers are not exploited and their products are heterogeneous. Markets which are monopolistic should not be encouraged in the economy though they produce unique products. They are not good since they charge very high prices yet the quantity of good produced is very low. Therefore, the president should encourage some markets than others. The most dominant market structure is the one under competitive structure because there are no market restrictions. This market is very dominant and realistic because it is influenced by the forces of demand and supply.
Labor markets are also controlled by the forces of demand and supply. The labor markets work because the employees and workers are interacting in a free market. This market focuses on the suppliers of labor who are actually the workers and those who demand labor and are referred to as the employees. If the demand is lo the employees are seeking for more workers who have the required skills. The workers provide labor in return of wages. The demand for labor is actually a derived demand meaning that it helps in production of output. An additional demand for labor depends on marginal revenue of a product that is of the workers. The problem which mostly affects the labor market is age differential. Wage differentials are brought by marginal revenue of a product of the worker. In simple terms the marginal revenue of a product is influenced by inputs in the production which a particular worker can manage to use. The amount of education that a worker has results to wage differential because it is seen and valued as human capital (Gregory, 2008).
Labor unions are formed due to dissatisfaction of workers in workplace. For example wage differential can lead to formation of trade unions. Trade unions are very important to workers because they fight for their welfare. In most cases there is discrimination in workplace which the trade unions fight for and make sure it is eliminated. Trade unions organize strikes and boycotts to make sure that the welfare of employees is catered for.