This does not only apply to families, but businesses as well. This paper will address different types of economics and some of the factors that contribute to its changes. Economics is “a social science that studies how individuals, governments, firms, and nations make choices on allocating scarce resources to satisfy unlimited wants. ” Economics is broken down into microeconomics and macroeconomics. Microeconomics analyzes how firms and households make decisions about how they should spend their money respectively. Microeconomics focuses on a smaller scale, once the prefix micro-.
It looks at the basic economic theory of supply and demand which tells businesses how much of a certain product they should produce, and how much they should be charging for it. Macroeconomics on the other hand studies the whole economy which includes things like unemployment rate, national income, rate of growth, gross domestic product, inflation, and price levels. There are also two main schools of thought in economics. The first is classical, and they thought that when there was a problem that the solution should be aimed to fix it in the long run.
Keynesian economists thought that solutions should be geared towards fixing them in the short run. Classical economics also believes in
Need essay sample on "Economics Paper"? We will write a custom essay sample specifically for you for only $ 13.90/page
Microeconomics is “a branch if economics that studies the behavior of individual households and firms in making decisions on the allocation of limited resources. ” Microeconomics studies markets where goods and services are bought and sold. In these markets consumers determine the supply and demand for those goods and services. This determines how the producers of those goods and services will set the prices for them. The price point will determine what the supply and demand for those goods and services will be.
One of the main staples of microeconomics is elasticity. Elasticity is measured is measured by dividing the percentage of the change in quantity, by the percentage of the change in price. What that will tell you is When something is said to be elastic it means that the demand will drop when there is an increase in price. An inelastic product will have a demand that does not change much when the price is increased. Usually this happens when there are no suitable replacements for that product. One example would be computers.
If HP suddenly doubled the price that it was selling its laptops for, demand for them would decrease drastically. People would Just buy Dell, Sony, Acre, or some other type of computer that was capable of doing the same things. When people can find reasonable substitutions, products tend to be more elastic. Gas on the other hand is relatively inelastic. People do have the choice of finding alternate modes of transportation, but most of them would prefer to drive their own vehicles. This means that most of them will be forced to continue buying gas even when the price rises.
The law of supply is “a fundamental principle of economic theory which states that, all else equal, an increase in price results to an increase in quantity supplied. Most of the time, quantities will react in the same direction as the prices. Businesses will increase the production of goods and services that cost more money because they will be able to increase their profit margins. In the same way, when prices decrease they will scale back the production of those products because they will not be able to as much of a profit.
Companies will always do what is best for them, and the number one reason for them being in business is to make money. What the consumer wants will always dictate they type and price of goods and services that are supplied. When a certain type of product comes out or starts to increase in sales it directly affects the market for that product or service. An example of this is when pods came out and got very popular. The price of the product was high initially, but they were still selling very well. Apple increased its production because they were able to make greats profits from it.
After this happened there was an influx of other amp players from a plethora of other electronics companies. Since they had new found competition, Apple was forced to lower the price of the item. Consumers still referred the pod over many of the other amp players on the market, and because of their presence, the pod became much more affordable. In economics the law of demand states that “all else equal, as the price of a product increases, a lower quantity will be demanded; likewise, as the price of a product decreases, a higher quantity will be demanded. The same way that businesses produce and market products that will give them the best profit margins, consumers will look out for themselves. This means that when businesses increase the price of products and services, consumers will decrease the demand for those Geiger priced items. Consumers look to get the best deals that they possibly can because they have unlimited wants and needs, and a finite amount of money to get those things. Since this is the case, they will try to address as many of those wants and needs as possible with their limited amount of money.
This is why people will often buy substitute products that do not cost as much as the original items that they wanted. This will allow them to save some of the money that they have to purchase other goods or services. There are some cases where the law of demand does not follow normal rules. Two examples of this are Gifted goods and Evolve goods. A Gifted good “is one which people paradoxically consume more of as the price rises” shortage of potatoes during this time, the price of the potato went up.
A Evolve good “is a member of a group of commodities for which people’s preference for buying them increases as their prices increases. ” An example of this is luxury cars. Some people prefer to buy items such as luxury cars especially when the price increases because it is a status symbol. In the definition for the law of supply and the law of demand, you will find the hearse if all else is equal. Sometimes things are not equal. In certain circumstances there can be factors that can lead to change in supply or demand. The most important of these are the tastes, customs, and preferences of the target market, the consumer’s income level, the quality of the goods or services being offered, and the availability of competitors’ goods or services. ” The tastes of society can change at any time for any number of reasons. In recent years there has been increased awareness about health. This meant that people have started to eat better. Due to this, many of he fast food restaurants moved away from selling fatty, high calorie, value meals.
They also had to start offering healthier menu choices to its diners such as replacing fries in kid’s meals with apples, or offering salads and wraps. Income is obviously another major factor in demand. If the overall income of the consumers goes down, the prices would have to follow if producers want to continue selling their products. “The supply of goods and services in the marketplace is predicated on several factors as well, including production capacity, production costs (including wages, interest hares, and raw materials costs), and the number of other businesses engaged in providing the goods or services in question. Businesses will find a way to increase the ability to produce more of a product or service if it is doing well in the marketplace. Their main objective is to increase their profits, and the only way to do that is to sell more of their products. Supply also heavily depends on production costs. Companies will produce their goods at the cheapest price possible, but in some cases production prices go up. This usually means that supply will have to be creased. While it has yet to be determined with any certainty, economics is more of a science than not.
The biggest issue that opponents of this theory have is the fact that many of the theories of economics get disproved by real life situations. If you really think about it, this happens in all different types of science. There is really no question about whether or not psychology is a science, but it has many theories that have been disproved over the years. Economics has also been compared to Darwinian biology. If you are going to attempt to discredit economics as a science cause some models are used to the point that they no longer work. This happens in all types of sciences.
Economists do have hypotheses that they have to test, but they are not able to go to a laboratory and test the theories that they have like most other scientists. They have to use history and small scale real world events to test their theories. Models are the tools used by economists to do their Job. In the same way that a painter has different brushes to do different things on a canvas, economists have different models that they work with. “The economic model is a amplified framework designed to illustrate complex processes, often but not always using mathematical techniques. Economists use these models to help them to prove does add some credibility to what they do. Economics, especially microeconomics is a very important part of people’s lives. The better that people understand that they have the ability to affect the supply and pricing of the items they want and need, they will be able to do so. Businesses will always be out to get the highest profit margins that they can, so consumers need to look out for themselves. Economic theory changes on a regular basis, and by all estimations it will continue to do so.