**3. Basic economic concepts**

### **3.1. Economics terms used**

However, closer investigation reveals a problem that Japan may face in the near future.

show that the import price of licorice from China has been increasing for several years. In particular, the dramatic rise in the price of imported Chinese licorice after 2012 is remarkable,

As shown in **Figure 3**, there has been an increase in the price of licorice imported from China. As seen in **Tables 1** and **2**, Japan relies heavily on China for its supply of licorice, with the result being that the high price of licorice imported from China has led to high prices for licorice in

Because licorice is an important raw material for manufacturing pharmaceutical products, the high price of licorice in the Japanese market causes increased costs for the manufacturing of pharmaceutical products. If this high price continues, then the pharmaceutical industry in Japan may be affected by budget constraints in the production of medical products containing

<sup>3</sup> **Figure 3** is derived from Trade Statistics of Japan conducted by the Japanese Ministry of Finance (http:// www.customs.go.jp/toukei/srch/index.htm?M=01&P=0) [Accessed: 2016‐09‐17]. Import prices in **Figure 3** are calculated as cumulative amount spent on Japanese imports of licorice from China in **Table 2** divided by the cumulative total volume of Japanese import of licorice from China in **Table 1**. For detail, we amend per‐unit data in **Table 1** from tons to kilograms.

These data

**Figure 3** shows the import price of Chinese licorice per kilogram (in 1,000 yen).3

with the price in 2015 being nearly three times that in 2007.

42 Biological Activities and Action Mechanisms of Licorice Ingredients

**Figure 3.** Trend in the import price of Chinese licorice (2007–2015).

the Japanese market.

licorice.

As discussed in the previous section, China is the most important source of licorice for the Japanese market. In addition, the price of licorice from China has been increasing in recent years. In this section, we try to understand this situation in economic terms by considering the potential causes for the increasing price of Chinese licorice and its impact on the Japanese market.

We attempt to use basic, rather than highly specialized terminology4 in this chapter as many of its readers will be experts in pharmacology, but unfamiliar with economics.

In mainstream economics, the price and quantity traded of goods and services are determined mainly by supply and demand. To understand this concept properly, we first introduce definitions of several important economic terms. We refer specifically to reference [5] to define the terms market, quantity demanded, the law of demand, quantity supplied, the law of supply, and market equilibrium. We define these terms as per reference [5] as follows:

A market is defined as "a group of buyers and sellers of a particular good or service."

Quantity demanded is defined as "the amount of the good that buyers are willing and able to purchase."

The law of demand is defined as "the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises."

Quantity supplied is defined as "the amount of a good that sellers are willing and able to sell."

The law of supply is defined as "the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises."

Market equilibrium is defined as "a situation in which the market price has reached the level at which quantity supplied equals quantity demanded."

**Figure 4**<sup>5</sup> summarizes the definitions above. The curves here are referred to as the demand curve and the supply curve of a good.6 We can see that the demand curve and the supply curve are downward‐sloping and upward‐sloping, respectively. The shapes of the curves are due to the aforementioned laws of demand and supply.

As seen in **Figure 4**, there is a point at which the demand curve and the supply curve intersect. This intersection is the graphical representation of the market equilibrium. The

<sup>4</sup> The discussion in Section 3 derives primarily from Ref. [5].

<sup>5</sup> **Figure 4** is prepared by the author on the basis of Ref. [5].

<sup>6</sup> In Ref. [5], the demand and supply schedules are determined as a graph of the relationship between the price of a good and the quantity demanded and a graph of the relationship between the price of a good and the quantity supplied, respectively. In **Figure 4**, a good's price and quantity traded are indicated on the vertical and horizontal axes, respectively. The demand schedule, supply schedule, equilibrium, price at equilibrium, and quantity at equilibrium are labeled D, S, E, Pe, and Qe, respectively.

actions of buyers and sellers naturally move markets toward the equilibrium of supply and demand [5].7

**Figure 4.** Market equilibrium.

#### **3.2. Shifts of the demand and supply curves**

Up to this point, we have understood that the price and quantity traded of a good are deter‐ mined by its market equilibrium. However, as mentioned in the definitions of the laws of demand and supply, this is true if and only if all factors other than the price and quantity traded of the good are held constant. This is unrealistic because there are numerous factors affecting a good's price and traded quantity [5].

In this subsection, therefore, we try to understand a case when the aforementioned assumption is relaxed.

As described in reference [5], if something happens to alter the quantity demanded at any given price, then this is expressed through a shift of the demand curve. Specifically, any change that increases the quantity demanded at every price shifts the demand curve to the right. This shift is due to factors other than price that may increase the consumers' willingness to consume the good at any given price. Buyers now want to purchase a larger quantity of the good, with the opposite holding true as well.

<sup>7</sup> In the short run, there are possibilities to have price and quantity traded of the good at points other than the market equilibrium. However, these occurrences are often accompanied by excess demand and supply, and market settles at equilibrium in the long run. For a more detailed description, see Ref. [5].

To help understand how shifts in the demand curve occur, below we refer to three represen‐ tative examples of the factors used in economics as presented in reference [5].

The first factor relating to demand for a good is income. Suppose that consumers' incomes fall and they have less money to spend, as a result, consumers' consumption of a good will be lower at a given price. Conversely, if consumers' incomes rise, then they take the opposite action.

The second factor relating to demand for a good is the price of related goods. When consumers purchase something, they often compare its price to that of its substitutes (i.e., ice cream and frozen yogurt). If the price of a substitute is cheaper, then the consumers may choose to buy the substitute and vice versa.

A third factor relating to demand for a good is the number of buyers. If the number of consumers in the market increases, then the quantity demanded in the market will increase at any given price. Conversely, if some consumers stop consuming the good, the quantity demanded will decrease.

In addition to the factors discussed above, public policy makers can also influence the quantity demanded. One way to influence demand is to impose a tax. If policy makers consider consumption of a good to be unsuitable (e.g., cigarettes), then they may impose a tax on that product on for the purpose of raising its price [5].

The shift in the demand curve discussed above is depicted in **Figure 5**. 8 We can see that the demand curve can shift to the right or to the left. As shown in the figure, the former leads to an increase in quantity demanded while the latter leads to a decrease in quantity demanded [5].

**Figure 5.** Demand curve shifts.

actions of buyers and sellers naturally move markets toward the equilibrium of supply and

Up to this point, we have understood that the price and quantity traded of a good are deter‐ mined by its market equilibrium. However, as mentioned in the definitions of the laws of demand and supply, this is true if and only if all factors other than the price and quantity traded of the good are held constant. This is unrealistic because there are numerous factors affecting

In this subsection, therefore, we try to understand a case when the aforementioned assumption

As described in reference [5], if something happens to alter the quantity demanded at any given price, then this is expressed through a shift of the demand curve. Specifically, any change that increases the quantity demanded at every price shifts the demand curve to the right. This shift is due to factors other than price that may increase the consumers' willingness to consume the good at any given price. Buyers now want to purchase a larger quantity of the good, with

<sup>7</sup> In the short run, there are possibilities to have price and quantity traded of the good at points other than the market equilibrium. However, these occurrences are often accompanied by excess demand and supply, and market settles at

demand [5].7

**Figure 4.** Market equilibrium.

is relaxed.

**3.2. Shifts of the demand and supply curves**

44 Biological Activities and Action Mechanisms of Licorice Ingredients

a good's price and traded quantity [5].

the opposite holding true as well.

equilibrium in the long run. For a more detailed description, see Ref. [5].

<sup>8</sup> **Figure 5** is drawn from Ref. [5]. Price and quantity traded of the good are indicated on the vertical and horizontal axes, respectively. The initial demand schedule, a rightward shift, and a leftward shift are labeled D, D', and D", respectively.

In reference [5], if something occurs that alters the quantity supplied at any given price, then the supply curve is shifted. This shift is due to the following factors. If there are factors other than price that increase the suppliers' willingness to supply the good at any given price, then sellers are willing to produce a larger quantity, and the supply curve shifts to the right, with the opposite also holding true.

We also refer to three representative examples of the economic concepts presented in refer‐ ence [5].

The first factor determining the supply of the good is its input price. To produce the good, suppliers incur costs such as material and labor costs. If these costs increase, then the suppliers' profit from selling the good at the given price will decrease, thus lowering the quantity supplied.

The second factor to consider is technology. If the technology for turning inputs into a final product is improved (e.g., new machinery or methods are developed and fewer inputs and time are required to produce a given quantity of the good), production costs will be reduced, helping to increase supply.

A third factor relating to the supply of a good is the number of sellers. If the number of sellers in a market increases (i.e., new suppliers enter the market), then the quantity supplied in the market will be increased.

Similar to the case of the demand curve, public policy makers can also influence the quantity of the good supplied. This can be accomplished in several ways, including through regulations. Policy makers regulate the supply of the product when they consider the supply of the good to be socially undesirable [5].

**Figure 6.** Supply curve shifts.

The shift in the supply curve discussed above is depicted in **Figure 6**. As in the case of the demand curve, the supply curve can shift to the right or to the left. As shown in this figure, the former leads to an increase in quantity supplied while the latter leads to a decrease in the quantity supplied [5].9

In reference [5], if something occurs that alters the quantity supplied at any given price, then the supply curve is shifted. This shift is due to the following factors. If there are factors other than price that increase the suppliers' willingness to supply the good at any given price, then sellers are willing to produce a larger quantity, and the supply curve shifts to the right, with

We also refer to three representative examples of the economic concepts presented in refer‐

The first factor determining the supply of the good is its input price. To produce the good, suppliers incur costs such as material and labor costs. If these costs increase, then the suppliers' profit from selling the good at the given price will decrease, thus lowering the quantity

The second factor to consider is technology. If the technology for turning inputs into a final product is improved (e.g., new machinery or methods are developed and fewer inputs and time are required to produce a given quantity of the good), production costs will be reduced,

A third factor relating to the supply of a good is the number of sellers. If the number of sellers in a market increases (i.e., new suppliers enter the market), then the quantity supplied in the

Similar to the case of the demand curve, public policy makers can also influence the quantity of the good supplied. This can be accomplished in several ways, including through regulations. Policy makers regulate the supply of the product when they consider the supply of the good

the opposite also holding true.

46 Biological Activities and Action Mechanisms of Licorice Ingredients

helping to increase supply.

market will be increased.

to be socially undesirable [5].

**Figure 6.** Supply curve shifts.

ence [5].

supplied.

In this subsection, we referred to reference [5] to describe the basic terms and concepts of economics. In economic market analysis, the price and quantity traded of a good are deter‐ mined by its market equilibrium (i.e., the point where demand and supply meet). In addition, factors other than price may shift the demand and supply of a product. We also gave examples of the factors influencing demand and supply in reference [5]. However, there are numerous other factors affecting the demand and supply of a good.
