How society manages its scarce resources and benefits from economic interdependence?
The management of the scarce resource is being 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 is being made by the prices and the demand for the products. The society manages the scarce resources by buying the resources from the producers across countries and borders. However, in the process of the market economy, individuals are empowered by the government and the society to decide the goods they want to produce, the buyers they want to work for. In a market economy, goods and things are interdependent and people tend to enjoy their everyday life. 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 the goods enhances the chance of trading and also increase the quality of life of people. Society is also at advantage because of the interdependence as the competitive prices and consumers decide the competitive sellers.
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Why the demand curve slopes downward and the supply curve slopes upward?
The demand curve in a graph indicate a relationship between demand of the 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 a service is decreased the demand of the good is increased. For example, if the price of a latest cell phone is decreased then the demand of that particular model of the phone will be increased in the market. In short, the demand curve has an inverse relationship between price and the quantity of the product or the service. The supply curve is a graph which illustrate the relation between the price and production of the product. It can be seen from the supply curve because the quantity of a good or a service is dependent on the price of the service. The supply curve is upward in economics is because of minimal expanses and also because higher prices mean the quantity of the product is being increased.
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Where the point of equilibrium is and what does it determine?
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 the economics, the equilibrium point is where the force 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 the economics is being maintained by adjusting the prices whether lowering or raising as a result of the requirement and changes in the supply and demand. For the sake of sustainable growth, markets aim for equilibrium point because the quantity in demand is equal to 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 on 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 change when there is a change in the market demand and supply curve over the 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 which determine the quantity of the goods need to produce. Markets are huge and the prices change over the time so to reach the market equilibrium the balance between the supply and demand is essential.
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The impact of price controls, taxes, and elasticity on changes in supply, demand and equilibrium prices?
Price control can have 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 the direct impact on the demand of a commodity or a good. The curve of supply and demand is changing continuously based on the condition of the market. For example, the price control put a price ceiling and floor to particular goods and it means that price control has certain upper and lower limit for the prices of the 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 and supply. However, taxes on the other hand has 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 are imposed on the buyers, the price of the product will increase as consumers are paying the taxes along with original price of the product. If the supply of the products is less elastic then chance are that seller will have more burden but if demand is less elastic then buyer will have more burden. By understand the ten principle of economics, it can be understood about how economy works, how decision are being made in the markets and how the shift of supply and demand changes.
