Question 1
Numerous factors affect the price of a product in the market. The most critical factor in the majority of economies is the supply and demand (Rios, McConnell, & Brue, 2013). It is followed by the influence of the government through laws and regulations, international transactions between countries, and the speculation and expectation of how the direction the economy will take in future.
The price ensures the equilibration of the market by achieving a fixed price that meets the needs of the producers and the consumers (Rios, McConnell, & Brue, 2013). In this regard, the supply of goods is at its most efficient as it is exactly as much as that demanded by the consumers.
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Question 2
On the one hand, supply refers to the various amounts of goods provided to a market at different prices in a supply curve. On the other hand, quantity supplied represents the products offered by businesses at a particular price. Demand denotes the ability or willingness of a consumer to purchase a particular commodity in the market (Rios, McConnell, & Brue, 2013). The term quantity demanded contrasts the former in meaning as it represents the amount of a particular product or service that consumers would like at a fixed price.
Question 3
According to the laws of economics, the price is a result of the relationship between demand and supply. The law of demand points out that the higher the price of a commodity, the lower the quantity demanded. Whereas, the law of supply denotes that the lower the price, the lower the amount supplied (Rios, McConnell, & Brue, 2013). Therefore, to achieve market equilibrium, the supply and demand seek to realize a common ground where the two equations intersect. In this case, the supply of the commodity equals the demand for it satisfying all parties involved including consumer, producer and the country in question.
Question 4
The price ceilings and floors are two critical factors in the pricing of a product. As the government sets them, they may be above or below the market price. In an instance where the price ceiling is below the market price, a shortage occurs (Rios, McConnell, & Brue, 2013). This shortage takes place because the quantity demand is more than that supplied. On the other hand, a surplus occurs where the price floor is set higher than the equilibrium price. The immediate impact will be excessive as the quantity supplied exceeds the quantity demand.
Question 5
It is evident from the demand and supply curves that the concept of utility is an integral factor towards purchasing a product. It represents the fulfillment drawn from consuming a commercial product. The marginal utility-price ratio identifies the additional satisfaction gained from the last currency amount spent on the consumed good. To maximize utility, a rational consumer must ensure consumer equilibrium by making sure that all products that one could purchase have a similar marginal utility-price ratio (Rios, McConnell, & Brue, 2013). To identify the marginal utility-price ratio, one divides the marginal utility gained from this consumption by the unit price of the good.
Question 6
Total utility denotes the satisfaction gained from the consumption of a product usually increasing with the additional good consumed. The marginal utility identifies the additional satisfaction gained from each extra unit of a consumed good. Despite the continued increase in the total utility during consumption of the good, the marginal utility significantly decreases with every additional product consumed (Farley et al., 2013). This occurrence is known as the law of diminishing marginal utility because the consumer will not receive the same level of satisfaction as that gained from the first one.
Question 7
The federal government spends money in three distinct aspects; the mandatory spending, discretionary spending and interest on the debt of the country. The federal government gets its revenue come from three primary sources including income taxes, payroll taxes that employers contribute and the corporate income taxes by all legal businesses (Farley et al., 2013). The state/ local government gets their revenue from own sources, intergovernmental transfers, individual income taxes, charges and miscellaneous, and corporate income taxes among other taxes. However, the income is distributed into numerous expenses including government administration, healthcare, education, protection of persons, social services, resource conservation and development of industries, environment, and recreation and culture (Farley et al., 2013).
Question 8
The circular flow diagram helps illustrate the interaction between households and businesses in a market economy. The homes will enable the provision of factors of production such as labor and capital while the businesses provide goods and services for the consumers (Farley et al., 2013). The revenue and expenditure decisions of the government affect the availability of resources and how they are distributed between the households and the firms. These factors enable the two to appropriately participate in the market economy through exchanging goods and services for monetary value.
Question 9
The health of a country’s economy is measurable through the observation of GDP, inflation, and unemployment. The real GDP helps economist identify the value of commodities and services within a country usually in a fiscal or calendar year where an increase demonstrate positive outcomes. High levels of unemployment show a lack of use of valuable resources in the realization of the real GDP hence an undesirable economy (Choudhry, Marelli, & Signorelli, 2012). Inflation which is the increase in the overall prices shows that the value of the currency is diminishing as seen in reduced purchasing power and lower standards of living among the people hence indicating a poor health of the economy.
Question 10
Price stickiness is likely to moderate over time allowing economists to incorporate various macroeconomic models for different time horizons. The macroeconomic models can help highlight certain aspects of the economy including potential growth, ability to reduce the adverse effects of the recession, and the effectiveness of particular government policies on tools to mitigate short-run and long-run fluctuations that may occur (Choudhry, Marelli, & Signorelli, 2012). In this regard, the models help identify the powers of the government and their limits in using the economic policy.
References
Choudhry, M. T., Marelli, E., & Signorelli, M. (2012). Youth unemployment rate and impact of financial crises. International journal of manpower , 33(1), 76-95.
Farley, J., Burke, M., Flomenhoft, G., Kelly, B., Murray, D. F., Posner, S., ... & Witham, A. (2013). Monetary and fiscal policies for a finite planet. Sustainability , 5(6), 2802-2826.
Rios, M. C., McConnell, C. R., & Brue, S. L. (2013). Economics: Principles, problems, and policies . New York: McGraw-Hill.
