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Eco 365 Week 1 Essay

2157 words - 9 pages

Economics Paper
University of Phoenix
ECO365
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 ...view middle of the document...

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 price rises.
The law of supply is “a fundamental principle of economic theory which states that, all else equal, an increase in price results to an increase in quantity supplied.” Most of the time, quantities will react in the same direction as the prices. Businesses will increase the production of goods and services that cost more money because they will be able to increase their profit margins. In the same way, when prices decrease they will scale back the production of those products because they will not be able to as much of a profit. Companies will always do what is best for them, and the number one reason for them being in business is to make money. What the consumer wants will always dictate they type and price of goods and services that are supplied. When a certain type of product comes out or starts to increase in sales it directly affects the market for that product or service. An example of this is when iPods came out and got very popular. The price of the...

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