How does society manage its scarce resources and benefit from economic interdependence?
The management of scarce resources is carried out through the process of the market economy. The market economy is a process in which decisions concerning investments, production, and distribution of the product are made by the prices and the demand for the products. Society manages scarce resources by buying resources from producers across countries and borders. However, in the process of the market economy, individuals are empowered by the government and society to decide the goods they want to produce and the buyers they want to work for. In a market economy, goods and things are interdependent, and people tend to enjoy their everyday lives. For example, certain products and goods are region specific and demand for those products is created from the buyers across the country. In this way, these regions are able to provide the goods required in other regions and, in turn, attain the goods which are required in the supplying region. In other words, producers exchange goods among themselves based on the demand and supply concept of economics. The interdependence of goods enhances the chance of trading and increases people’s quality of life. Society is also at an advantage because of the interdependence of competitive prices and consumers deciding the competitive sellers.
Why does the demand curve slope downward, and the supply curve slope upward?
The demand curve in a graph indicates a relationship between the demand for goods and the price of that certain good in a market. The slope of the demand curve is downward because when the price of a good or service is decreased, the demand for the good is increased. For example, if the price of the latest cell phone is decreased, then the demand for that particular model of the phone will be increased in the market. In short, the demand curve has an inverse relationship between the price and the quantity of the product or the service. The supply curve is a graph that illustrates the relationship between the price and production of the product. It can be seen from the supply curve because the quantity of a good or service is dependent on the price of the service. The supply curve is upward in economics because of minimal expenses and higher prices, which means the quantity of the product is being increased.
Where is the point of equilibrium, and what is it determined?
With the change in the market condition, the supply and demand curves also change. The supply and demand of the products determine the market fluctuations. In economics, the equilibrium point is where the forces of supply and demand are balanced. It is the condition in the market where the demand and supply of the product or the services are balanced. The equilibrium in economics is maintained by adjusting the prices, whether lowered or raised, as a result of the requirements and changes in supply and demand. For the sake of sustainable growth, markets aim for an equilibrium point because the quantity in demand is equal to the quantity supplied in the market. In other words, it is beneficial for both buyers and sellers in the market. The elasticity of the demand measures how the quantity demanded in the market requires change. Within specific circumstances, the marginal revenue should be equal to the marginal expenses. The equilibrium point changes when there is a change in the market demand and supply curve over a period of time. For instance, if a product has increased demand, then to reach the equilibrium, the market needs more supply of that particular product. Prices in the market are the factors that determine the quantity of goods needed to be produced. Markets are huge, and the prices change over time, so to reach market equilibrium, the balance between supply and demand is essential.
What is the impact of price controls, taxes, and elasticity on changes in supply, demand and equilibrium prices?
Price control can have a significant impact on the supply, demand and equilibrium of the products. Prices are the primary factor in determining who is producing the goods and at what cost the goods are being produced. Prices control and taxes have a direct impact on the demand for a commodity or a good. The curve of supply and demand is changing continuously based on the condition of the market. For example, price control puts a price ceiling and floor on particular goods, and it means that price control has a certain upper and lower limit for the prices of certain goods. Therefore, if the price of a certain good is between those limits, then there will be no effect on the market price, demand, or supply. However, taxes, on the other hand, have a significant impact on the supply and demand curve. Taxes, whether implied on the buyers or the sellers, will result in shifting the supply curve upward. For example, if the tax is imposed on the seller, they will increase the price of the goods to have the same profit they will have without tax being paid. On the other hand, if the tax is imposed on the buyers, the price of the product will increase as consumers pay the taxes along with the original price of the product. If the supply of the products is less elastic, then the chance is that the seller will have more burden, but if the demand is less elastic, then the buyer will have more burden. By understanding the ten principles of economics, one can understand how the economy works, how decisions are being made in the markets, and how the shift of supply and demand changes.
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