University of Phoenix
May 6, 2013
Economics is a tool that we use in our daily lives even if we don’t always realize it. As people we all have things that we want, and things that we need. This includes things like food, clothing, and shelter, but it is not limited to those things. In order to get those things, people have to spend money. The issue is that everything that people need and want costs money. More often than not, people do not have the money to do both so they have to decide which things are important for them to have right now. 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, hence 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 the theory of the invisible hand. This theory says that imperfections in the economy will fix themselves automatically. Keynesian economics strongly disagrees with this because they feel that price adjustments are the best way to fix those problems. Since they think that’s the case, then the opposite can’t be true. The two sides also have fundamental differences on when the government should step in and try to correct the economy.
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 how the demand for goods and services change in relation to a change in its price. 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, Acer, 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...
References: Colander, D. C. (2008). Economics (8th ed.). Boston, MA: McGraw-Hill/Irwin.
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