Ten Principles Of Economics And How Markets Work

750 words - 3 pages

Ten Principles of Economics and How Markets Work

365/ECO

July 18, 2016
University of Phoenix

Ten Principles of Economics and How Markets Work

Economics is the study of how society manages its resources, and how they are allocated (Mankiw, 2015). People must understand how the markets, trade, and government can affect items like inflation, investing, and their standard of living. Frequently, the government will interfere with the natural flow of the supply and demand curve creating ripples in the economy that will take years to readjust to normalcy.
Resources, interdependence and the supply and demand curve
People and governments must decide what to spend money ...view middle of the document...

Downturns and upswings in economies affect the supply and demand curve. The supply and demand curve is a tool (graph) used to illustrate how much a product or service will be bought at any pricing strategy, and with certain amounts of supplies (Mankiw, 2015). The down sloping demand curve mean that a rational consumer will demand more of the good or service as pricing declines. Supply, however, is an upward curve based on the higher price needed to cover increasing marginal costs in production.

Equilibrium, price controls and regulations, and elasticity
In the supply and demand curve the intersecting point where two curves meet is called the equilibrium price (Mankiw, 2015). The equilibrium price is indicative of the quantity consumers want and the amount the company is willing to sell. This point is also where business margins are set to maintain profitability for the company producing the product or service. Elasticity indicates small changes in pricing will create large changes in demand, or if a curve is less elastic, large pricing changes are necessary to create large swings in consumer consumption.
Elasticity, price controls, and regulations all affect supply and demand, and equilibrium prices. Price controls set a price on the free market for many goods around the world. Governments set a price ceiling or...

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