Type of paper: Essay

Topic: Business, Services, Economics, Products, Production, Demand, Economy, Value

Pages: 3

Words: 825

Published: 2020/11/16

In life everyone wants more of things that they consider basic and those that are luxury but necessary. This is where the concept of scarcity sets in implying the inability to meet the needs. In economics, there is a need to study the effect of global and national economy on the choices that individuals, government, and businesses make. This is called macroeconomics that also explains the best choices for individuals and the society. The best choices for the society are those made for the sake of promoting social interest while the best ones for individuals are made in pursuit of self-interest. At times, one incurs opportunity costs in their pursuit of the bet decisions. This can be explained by a situation where they have to give up an alternative in order to get some other equally important alternative. One’s benefit from a good or service is determined by their preference. In making choices, the dependent factor is the incentive that one gets from taking one alternative and not the other. Incentives, therefore, are those factors that encourage or discourage an action (Bade and Parkin 11).
Consumer goods are the goods that are demanded by individuals for their use while capital goods are demanded by a firm that uses them in production. The process involves putting together the factors of production which imply the necessary materials or resources that convert inputs into outputs in a business (Bade and Parkin 343). In a circular flow of income, the major decision makers are the firm and the household. The actions by the two decision makers are coordinated by the business ability to buy resources and sell products and the household’s ability buy products and sell resources. The circular flow is used to indicate the activities of the interrelation of activities of decision makers (Bade and Parkin 483). In the factor market, the households sell their products to the firm, which in turn for the factors of production.
A production possibility frontier illustrates a combination of goods that can be produced within an economy with the scarce nature of resources. Below is an illustration of a production possibility curve illustrating how one can determine the marginal cost of production.
In an economy, the overall increase in the goods and services produced is called the economic growth. If a nation produces capital goods, its level of economic growth increases rapidly than when it has a subsistence economy. Countries have different levels of productivity. A country that is able to produce more than the others is said to have an absolute advantage. On the other hand, a nation that is able to produce goods at a lower opportunity cost is said to have a comparative advantage.
Several reasons explain the shift in the demanded quantity of a good or service as illustrated in the diagram below. A rise in prices for instance fromP1 to P2 shifts the curve from D1 to D2, indicating that price is a determinant of goods and services demanded as it shifts from Q1 to Q2.
The law of demand explains that an increase in prices of goods leads to a fall in the amount of goods that the consumers demand with other factors such as income held constant. Demand and income can have an inverse or a direct relationship. For normal goods the relationship is direct but it is inverse to inferior goods. A change in the supply of a product can be due to the seasonality of the product, increase in the taxes and demand for the product. The change of productivity of a good affects its supply due to the size of the quantity supplied. For equilibrium to be there in a market the quantity supplied and demand must be equal. As shown below, if the prices drop to a level below the equilibrium, the demand for the product rises, causing a shortage of the product. The suppliers then increase the prices to a level that brings them back to equilibrium.
The total goods and services produced in a country have their value measured by use of gross domestic product. The calculation of GDP includes goods and services such as agricultural production and goods and services produced by household for personal consumption. GDP is measured by use of three methods namely income, output and expenditure approaches. Expenditure such as purchase of raw materials is not included in the calculation of GDP. Potential GDP and real GDP are related to that the potential GDP refers to the highest level that real GDP can get to. The value of leisure in calculation of GDP is measured according to its increase or decrease where a decrease is an indication of the fall in GDP and vice versa.
The working age population can be used to refer to the number of people within a certain age bracket who can work regardless of their employment status. The rate of unemployment is calculated as the number of unemployed divided by the sum of employed and unemployed population. The economic definition of part-time, workers is those employees who are willing to give more of their productive abilities to the employers, but they are only allowed to work less due to low demand for the jobs. During recessions, the number of these workers increases due to the reduced production capacity of the firms. Frictional unemployment results from the mismatch between the jobs available and employee skills, location, attitude, and taste. Structural unemployment is as a result of obsolescence of processes in the company or a decline in performance of a particular industry.
The consumer price index is used to measure the general rise in prices of goods and services in an economy. The CPI market basket comprises the goods and services that are consumed by the households that represent the economy. The inflation rate measures the impact of the rise of goods and services in the economy. CPI bias can be used to refer to substitution bias where the consumers consume more of an inexpensive good if its prices fall thus affecting the market basket. A GDP deflator Is used to measure the prices of all new goods and services that are final and are produced domestically. The major difference between nominal and real value is the time. While nominal value represents historical value, the real value represents the current price of a commodity. The real interest rate is achieved by subtracting inflation from the nominal interest rate.

Work Cited

Bade, R., & Parkin, M. (2002). Foundations of microeconomics. Boston, MA: Addison Wesley.

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WePapers. (2020, November, 16) Economics Essays Examples. Retrieved July 14, 2024, from https://www.wepapers.com/samples/economics-essays-examples/
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Economics Essays Examples. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/economics-essays-examples/. Published Nov 16, 2020. Accessed July 14, 2024.
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