Economics Essay

And providence is a system that deals with human activities cereb set to the production, distribution, sub and outgo of goods and function of a country or other argona. Li whizzl Robbins outlined frugals as the science which studies human behavior as a relationship in the midst of ends and scarce means which establish alternative uses. (Robbins L. 1932) sparing science is based on the principle of scarcity of picks to satisfy human wants. As the resources to cater for the various human needs be limited, consumers welcome to fake choices.Scarcity of resources creates an economic problem that the economic systems try to solve. Economics uses unalike techniques, tools and theories to carry out analysis and to explain various actions and behaviors in the economic systems. Economics may be studied in various palm including environmental economics, financial economics, game theory, information economics, industrial organization, labor economics, world(prenominal) econom ics, managerial economics and public finance. The both main atomic number 18as of economics be macroeconomics and microeconomics.Macroeconomics deals with the aggregate national economy of a country while the microeconomics deals with the economics of an individual firm or person and their interactions in the market place, given scarcity of resources and regulations by the brass. Micro-economics is much concerned with the behaviors of individuals and firms in an industry and how these behaviors demand write out and posit of goods and services. These behaviors also affect the bells charged to the goods and services. Supply and direct are affected by the determines while legal injury is affected by tack on and learn.Hence these three aspects fuck off to balance at certain(a) counterpoise. At this point, the outlay charged to the goods and services pass on attain equilibrium in the midst of picture and lease of the goods and services. The theory of Demand and su pply is one of the fundamental frequency theories in microeconomics. This theory explains the relationship between price of goods and services in relation to the quality sold. It also explains the various related changes that occur in the market. The theory of involve and supply helps in the determination of prices of commodities in a competitive market environment.Demand of a good is the heart of goods and services that consumers are willing and able to buy at a certain price. Besides the price supplicate of a good is affected by other factors such as the income of the consumer and tastes and preferences. The demand theory suggests that consumer are perspicacious in choosing the quality of a product that they will consume at a certain price and also considering other factors like their income and tastes. around of the time, the consumption of goods and services by these customers is constrained by their income.As consumer look for to maximize the utility they obtain from a c ertain good or service, their income will act as a limiting factor. Thus the demand of a commodity matters on the purchasing creator of the consumers. The purchasing power is determined by the amount of income the consumer gets. At a fixed income the demand of consumers will be determined by the price of the commodities. The law of demand suggests that demand and price of a commodity are inversely related. The high the price of a commodity, the play down the demand of that commodity.When the price of commodity rises consumers will demand less of that good. This is because their purchasing power decreased. This is called the income effect. Increase in the price of a commodity will also result to the customers changing their consumption of the commodity preferring other less expensive commodities. This is called the substitution effect. The demand of the planes I sell will depend on their price and other factors such as tastes and preferences of the various customers in unalike parts of my market. However their demand will also be constrained by their take aim of income.If I increase the price of the planes my customers will demand fewer quantities due to income effect. several(prenominal) other customers may change to other similar products thus do substitution effect. When the income of the consumer changes, his consumption of the commodity will not move on the same demand cut, his demand curve will shift in proportion to his change of income. If the income increases the demand curve will shift outward for a normal good. This means that at a certain price the consumer will now consume more goods than he could with his earlier income.If the income decreases the demand curve will shift inwards and the consumer will demand fewer quantities of commodities at a certain price. Supply is the sum of a commodity that suppliers are able and willing to conduce to the market at a certain price. Producers seek to maximize their profits and so will bring to th e market quantities of commodity that will result to highest profits. The step of goods and services supplied depend on the prices of those commodities. Supply and price of commodities are directly proportional.This means the higher(prenominal) the price of the good at the market the higher the quantity supplied. For the prices of a commodity to be stable, the quantities of the commodity demanded must be equal to the quantity supplied. When demand and supply are equal on equilibrium in price is attained. The equilibrium price is that which results to equal quantities of demand and supply. When the price of a commodity is higher than the equilibrium the quantity demanded will be lower than the quantity supplied. at that place will be surplus quantities in t he market. The price will have to come down until the excess quantities are eliminated.IN the same way if the price is lower than equilibrium the quantities demanded will be higher than quantities supplied and hence the price w ill have to be increased until the demand equates supply. The demand and supply theory is use to determine prices in perfectly competitive markets. Price is the value stipendiary by the consumers for the utility they receive from a commodity. The price of a commodity affects the demand, supply and the quantities of the commodity sold in the market. The market price of a commodity is the intervention between marginal utility of the consumer and the marginal speak to of the supplier.The equilibrium price is the point where these marginal utility and marginal be equate. Elasticity measures the changes of one thing in relation to another. Elasticity of demand is the set up of change of quantity demanded of a commodity for a fussy change in the price of the commodity. Different commodities will change unalike for the same change in their prices. For example two products may have the same price and the same demand but unalike elasticities, significance when their prices change by one unit, their demand will change with different quantities.The commodity with higher demand elasticity will have a greater change in demand for the same change of price than a product with a lower elasticity. This can also come up in the case of supply resulting to price elasticity of supply. Both price elasticity of Demand and price elasticity of supply are the two types of price elasticities. Another form of elasticity is income elasticity of demand which measures the rate of change of demand in relation to change in income (Nelson, Salzmann).If the price elasticity of supply of my panels is high, then a little change in the price will greatly affect the quantity of panels the suppliers will bring to the market. On the other had if the price elasticity of demand of the panels in my market is high, my varying of the prices at which I sell the panels will greatly affect their demand. Monopolies are whereby one firm controls the whole market or a big percentage of the market of a commodity. When a firm have monopoly over a commodity the operations of the market as in a perfectly competitive market will not be possible.The monopoly will set its own prices whether they lead to equilibrium of demand and supply or not. Unless the monopoly is highly regulated the monopoly can manipulate the market by unfair practices like hoarding and price hikes. If I have a monopoly on the sale of the panels in my markets, I will have the liberty to set whatsoever price as far as it gives me uttermost profits in disregard of the needs of the consumers. However, if there is only one source of the panels then I will have to accept any price the supplier determines. Monopoly is one cause of market defects.Market crack is where by the market systems are inhibited from operating normally as in a perfectly competitive market. Other causes of market imperfection are externalities, public goods, uncertainties and extreme interference in the economy by the government. Market imperf ection can lead to market failure. Macro economics deals with performance of the national economy as a whole. It describes the behavior and building of the economy using indication such as GDP, unemployment rates and price baron (Mark Blaug 1985).Gross Domestic product is the sum of the market determine or prices f all final goods and services produced in an economy during a period of time according to Sparknotes (http//www. sparknotes. com/economics/macros/measuring1/section1. html). Gross house servant product (GDP) is careful by summing all the private consumption in the economy, investment by business or households, government expenditure and the give the axe of exports and imports. The formula GDP = C + I + G + (X-M) is employ where C is private consumption, I is investment, G is government expenditure and X is earn exports and M is gross imports (Sparknotes).Unemployment is whereby a person who is willing and able to bailiwick has no work (Burda, Wyplosz 1997), Unemplo yment rates show the performance of the economy as a whole. Unemployment is caused by different reasons. Unemployment rate can be calculated by dividing the number of unemployed workers by the total labor force. Philips curve was a theory that suggested that unemployment wince inflation stating that unemployment reduces inflation stating that unemployment was inversely related to inflation. Inflation is the percentage rate of change of a price index (Burda, Wyplosz 1997).Inflation leads to general increase in the prices of gods in t he economy. Inflation affects the value of capital in that it makes the purchasing power decrease. There are several theories used to explain practices in macro economics. The quantity theory of money is one of these theories that give the equation of change. It explains the relationship between overall prices and the quantity of money. The equation of change is given as M. V= P. Q where M is the total amount of money in circulation on come in an econ omy. V is the velocity of moneyP is price level Q is Index of expenditures. There have been different approaches to economics. These approaches differ on their popular opinion on certain aspects of economics. Some of the approaches that are there include Keynesian, monetarists, neo classical and the new classical. These different approaches led to up come of different schools of thoughts according to the inclination in the approach. However new developments have been ripe(p) leading to acceptance of well-nigh of the aspects that had been disputed before by some approaches.Keynesian economics supported the use of policies to control the economy. The argument was that to reduce fluctuations the government had to base on actions (fiscal or monetary policy) on the usual conditions of the economy. The new Keynesian economics tried to provide microeconomic to the fourth-year Keynesian economics Monetarism was against fiscal policy as it has a shun effect on the private sector Moneta rists argued that government intervention finished fiscal policy could lead to crowding out o f monetary policies rules (Mark B. 1985). monetary policy is government intervention in the economic operations aimed at bringing stability of affecting certain changes in the economic environment. Fiscal policies are carried out though control of the government outgo in the economy and use tax charged Fiscal policies are aimed at influencing the level of economic activities in the economy resource allocation and income distribution. The two tools, that is, Government spending and taxation is used otherwise to achieve different results. Incases of recession expansion fiscal policies are utilized.In this case the government increases its spending in the economy and reduces taxation. Contractionary fiscal policies are utilized by reducing government expenditure or spending in the economy and change magnitude tax charged. Contractionary fiscal policies can be used when there are high rates of inflation. Monetary policies are a form of intervention of the government into economic operation finished interest rates so as to control the amount of money in circulation. Expansionary monetary policy is applied during recession to increase the amount of money in circulation.Expansionary policy can also be used to curb unemployment in this case interest rates are move hence encouraging circulation of money. Contractionary monetary policies are applied by increasing the rate of interest rates in order to reduce the rate of money in circulation in the economy. Contractionary monetary policy can be utilized during high rates of inflation. Economic growth can be achieved by leaving the competitive market conditions to prevail. However the government should interact where the market is so unstable so that to bring regulation aimed at attaining optimum operation in the economy.