Impact of China’s one Child Policy
There has been a huge impact on the population of China ever since the introduction of the country’s one child policy that restricts urban couples from having more than one child. Currently, there are more old people in the country as compared to the younger population. This portends that sooner or later, the younger population that has been surpassed by the older population will be unable to pay for the healthcare and pensions of the elderly (Foster, 2014 para 31-32). Therefore, the impact of China’s one child policy is not only restricted to its effects on demography but also on the economy, especially with regard to the demand and supply of labor dynamics.
Although China’s growth is mainly attributed to high supply of cheap labor, the one child policy has threatened this particular critical advantage that the country once had (Das & N’Diaye, 2013 para.2-3). Demand and supply analysis indicates that the market is at its equilibrium when the quantity of labor supplied is equal to the quantity demanded (Market Equilibrium n.d. para.2). The graph below clearly illustrates this.
In case all factors remain constant the change in demand, or supply or both will always have an impact on the equilibrium of the market. For instance, in a case an overall demand for a particular commodity in the face of low or constant supply can create shortage. On the contrary, a decrease in demand in the face of constant supply can create a surplus. This ultimately has an impact on the price of the commodity (Market Equilibrium, n.d. para.4). China’s labor market is experiencing the gradual decline of an active working population even as the elderly population increases meaning that there will be an increase in the cost of labor. China’s economy might not be able to sustain the high cost of labor which it relied on initially to boost its growth. The one child policy has not only shrunk the working population but also led to the increase of wages. Therefore reduction of the supply of labor has resulted into higher wages which is not sustainable in the operations of a large economy such as China.
Even though this one child policy might have been created with good intentions, it has proven to be a threat to China as one of the largest economy. The impressive economic growth that China has experienced over the past few decades is mainly attributable to availability of cheap labor. From a demand and supply perspective, there needs to be a balance within the Chinese labor market. Such a balance is often referred as the point of equilibrium because it symbolizes a point at which the supply of labor must be equal to the demand. Despite the existence of cases where there is an imbalance between the supply and demand, measures can be taken to ascertain that there is no extreme decrease and increase in supply or demand. In order to pay for the healthcare and pensions of the elderly, there is need for the number of the active working population to be compatible to the population of the elderly. In the same respect, the economic growth of China can be sustained by making sure that the population of the elderly does not surpass that of the growing population.
Price Elasticity of Demand and the Market Economy
Many entrepreneurs demand to know more about the success of a business with regards to the demand of their product in the market. In order to operate a successful business one must know how responsive the quantity demanded is when compared to the change in the price of the product (McEachern, 2008 p. 98). The price elasticity of demand is a tool that is utilized in determining the relationship between the quantity demanded and the price of a commodity (Price Elasticity of Demand). It is possible for business persons to use price elasticity of demand to formulate strategies that can guarantee high revenue collection and survival in an increasingly competitive market. Moreover, price elasticity of demand can also provide a benchmark for firms to use before they choose to implement a certain strategy.
Calculations of price elasticity of demand can be made by finding out the percentage change in quantity demanded over the percentage change in the price of the commodity (Price Elasticity of demand, n.d. para 1-2). Entrepreneurs can therefore be able to manipulate the prices of their product to generate more money. The price elasticity of demand is said to be inelastic when the price elasticity of demand is less than one. On the contrary, is this is greater than one it implies that the PED (Price Elasticity of demand, n.d. para 6-8) is elastic.Unit elasticity on the other hand is when the value is one. The curve below illustrates the relationship between the quantity demanded of a product and the price of the commodity.
Essentially, price elasticity of demand is a tool that can be used to determine the levels of responsiveness or sensitivity of consumers to commodity price changes, which will inevitably affect the demand of a product (McEachern, 2008 p.100). Bearing this in mind, in a market economy where there is competition,entrepreneurs can decide to change the price of their commodities with the full knowledge that they can still make profits. However, the response of the people to such changes in prices is more important because the slight change in the price of a product may not necessarily translate into drastic decrease in the demand. Price elasticity of demand provides an opportunity for entrepreneurs to assess the market before they formulate any strategy that may have a negative impact business. Firms can also opt to lower the level of output if the price elasticity of demand is highly elastic mainly because high elasticity will generally result into a decrease in the demand of the product.
The market economy is quite competitive and as such entrepreneurs must look for strategies that can enhance their survival as profit seekers. In fact, it is crucial for owners of firms to be knowledgeable on the reaction of the consumers to the sudden increase of a product’s price in a market. For example, where the price of a commodity creates a big response that can be predicted, a greater than one price elasticity of demand will necessitate a company to come up with a promotional strategy to avoid great losses. However, a promotional strategy may not be required in case the price elasticity of demand is inelastic or less than one. If the firms are able to establish how sensitive the price of a product when related to its demand, then crisis can be avoided by taking necessary precautions.Entrepreneurs who know more about the effect of price elasticity of demand on their products (PED) are more likely to come with better strategies to minimize losses.
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Foster, A. 2014, “China Leaders: Challenges ahead”. BBC news. Available from: <http://www.bbc.co.uk/news/world-asia-20030681>. [29 January 2014].
Market Equilibrium, n.d. Market Equilibrium. Available from: <http://staffwww.fullcoll.edu/fchan/Micro/1MKTEQUILs.htm>. [29 January 2014]
McEachern,W, 2008, Microecomics: A Contemporary Introduction, Cengage learning, Boston.
Price Elasticity of Demand n.d, “Price Elasticity of Demand”. economicsonline.co.uk. Available from: <http://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html>. [29 January 2014]