Principles of microeconomics
Economics is a broad topic which encompasses both micro and macroeconomics. Microeconomics studies how individuals and companies use limited resources to satisfy their unlimited needs and how they interact with the market (McConnell, Brue & Flynn, 2008). People try to get the best quality products in the market at the best prices. The best prices as per the buyers are the lowest prices per unit of an item. When prices are low, the demand for products is high, and the demand reduces when the prices rise. Price changes in products are the biggest effect of the change in buying behavior of an entity. Buyers in the market do not purchase the same product all the time even when the price changes, they tend to go for substitutes.
How people make decisions
Before the purchase of an item in the market, an individual has to make a decision whether the product is worth buying. An individual could take the product because they need it most. Sometimes the buyer has to choose between two products that they like. This is called a trade-off. The value of the product chosen by the individual from the market is usually determined by the value of the product that has been given up. The two products do not necessarily have to be of the same price. The value of the product is how the buyer sees it and how helpful it will be to them. It is usually known as opportunity cost (Gans, King, & Mankiw, 2011). When it comes to decision making on the purchase of a product, most people usually use the ration. These people usually do the best they can to ensure that they achieve their buying goals.
Delegate your assignment to our experts and they will do the rest.
How people interact
The market offers a platform for the meeting and interaction between people from different ethnic backgrounds. Buying and selling from each other is a great way to encourage peace among people. Trading products among each other brings about collective betterment. An individual is made better at what they are doing. If a person is good at manufacturing a certain product, then trading will help them become better. This comes about when the buyer tells the producer what they want their product to look like and what it should entail. The consumer offers information to the producer about current market trends. Also, individuals become better at what they are doing because of constructive criticism.
The market is made up of different areas which need decision making. These decisions are decentralized as both household and firms make their individual decisions. Firms decide on the type of products that they want to sell to the market. These decisions on the products come from research on what the customers need. The firms will also decide on the type of employees that they want to work for them. The firms come up will qualifications for an individual they need. From these qualifications, the households decide on the company that they want to work for. It creates a cycle which determines the economy of a country.
The government has to be part of the market to ensure that the business environment is conducive. The government could ensure that the taxes imposed on firms do not extort them as this will affect the prices of basic products. By ensuring that firms have rights to their property, the government will help see to it that products move more efficiently and effectively in the market (Gans, King, & Mankiw, 2011). This will help in balancing demand and supply. A company has to supply products to the market which will match the level of demand in that market. The supply of too many products will cause a surplus and supply of too less will cause a deficit. The level of demand and supply has to be kept next to a point called equilibrium.
How the economy works as a whole
The economy of a country is defined by the standards of living of people in that country. The standard of living of people in a country is determined by the country’s ability to produce goods and services. In countries where people have high standards of living, there is a high production of products per unit time. The government takes into its own hands to raise the standards of living of its citizens. Most initiatives taken are positive while some have dire consequences. In some cases, the government tries to print more money, and this raises the prices of products (McConnell, Brue & Flynn, 2008). This is because there is too much money in the hands of individuals which will raise their buying power. The rise in prices will lead to inflation.
Most countries face both inflation and unemployment. Dealing with these two problems is hard and take a lot of time. A government has to choose to sort out one at a time, and this will mean putting the other on hold. Inflation and unemployment are a major crippling factor of many countries. Due to high levels of unemployment in most countries, prices are out of reach for the majority of the population. The government has to play a major role in the subsiding of inflation. It first has to reduce the amount of money that it prints and the amount of taxes it imposes on firms and its citizens. This will help reduce the prices of basic commodities.
References
McConnell, C. R., Brue, S. L., & Flynn, S. (2008). Microeconomics. Boston: Irwin .
Gans, J., King, S., & Mankiw, N. G. (2011). Principles of microeconomics . Cengage Learning.
