Economics Assignment Help
Scarcity of resources in society to fabricate goods and services and then allocating the sacred goods and services to the society are the main highlight of economics. It’s been eminent from the past from doing economics assignments that the society tends to ask for more then available which leads towards the scarcity of resources. The main resources that regulates a society are land, labor and capital and are allocated to generate the goods or services for the society and are meant to be used smartly in order to cope with the scarcity caused by the societal demand. The mean through which a society allocates its scared resources to the people is termed as the market system which allow people to trade among themselves, within or across borders. Economics is the source of knowledge that provides the skills and knowledge required for making decisions for the production and distribution of the scared resources. So we can say economics have helped in acquiring a way of thinking towards the production and distribution of the scared resources.
Microeconomics talks about individual buyer and studies the market system for small scale and focuses on the preferences and choices of individual buyer or consumer, firm or organization or other small economic units.
Considering and studying the choices and preferences of firms, organizations or any other large subsets of society and considering the aggregate performance of the society is termed as macroeconomics.
Every market has a buyer that creates the demand and a seller that manages the supply. Demand is usually represented by a demand schedule which highlights the quantity and price as initiated by the consumer. As explained by the law of demand, the relationship between price and quantity is inverse and is represented through a graph known as the demand curve and algebraically explained through the demand equation. A change in demand might occur due to a change in the prices of other allied goods that include the components and the substitutes. Also, any change in the income of the buyers it will also result in a change in demand. For the normal goods, a change in demand is direct while for inferior goods the change is inverse. Other reasons that may cause changes in demand are the changes in the preferences and expectations of the customers or consumers.
Supply is the other factor in shaping the prices and quantities of the market along with demand. It can also be represented through supply curve to know the relationship between price and quantity which in this case is directly proportional. There can be either reduction in supply or increase in supply but this change is dependent on some factors like any change in the price of other goods will encourage the supplier to switch similarly the change in the prices of raw materials used in production will also affect the supply curve. Another factor is the technological advancement which, if adopted, will result in increased prices, or it can also result in a reduction of the production prices and increasing demand.
GDP (Gross Domestic Product)
A record of the changes occurred in the market place due to deflation, or inflation is known as gross domestic product or simply GDP. The rise in the prices results in inflation, while the downward fall in prices results in deflation. If the change is evaluated at the prices of some base year, it is called real GDP.
Unemployment rate refers to that skilled labor force which is well capable of working but are not being utilized for doing any work and are still unemployed. It does not include those who are capable of working, but are not willing to work; such people are termed as discouraged workers. There is friction or structural unemployment. Frictional describes the concept of not finding and matching the new jobs with the qualified labor, which is willing to work and the reason is mostly due to insufficient information about the new and current job openings. On the other hand structural unemployment occurs mostly due the changes in the economy, which results in downsizing in organizations and restricting the workers from the work available due to lack of knowledge or not up to date knowledge.
The basic principle of the classical theory explains that the economy changes itself and is self-regulating. Traditional economists uphold the believe that the economy is always competent of achieving the natural level of real GDP, but only when the economy’s resources are fully employed.
Money and Banking
Money as defined is anything that is accepted in transaction from one person to another for the sale and purchase of goods. Money can be used as:
- Medium of exchange
- Unit of account
- Store of value
A medium of exchange is required for the transaction in any sale or purchase of good, and that’s why is a very important function. The medium of exchange is vital as it helps in eradicating the barter system which involved the exchange of goods or services only which is termed as a double coincidence of wants. Medium of exchange made transactions easier and broadened the scope of trade around the world.
Money needs a store of value to hold its value over time and to remain the medium of exchange. If there is no store of value for money, then it will lose its importance as a medium of exchange. Although it does not have the uniqueness as a store of value and people have other options, but its liquidity gives it and edge and preference over other stores of value as it is readily accepted and available and can be easily transported.
As a unit of account money provides valuable information and helps in decision making. It helps the supplier in deciding the rate of supply and the buyer to calculate the demand and the measuring their values in terms of price or money.
The Demand for Money
The uncertainty of the future, the inflation and the interest rates and not to forget the level of income are factors that greatly influences the demand for money. The three motives that creates the demands are briefly explained below.
It has been understood that money is required for the transaction, and the transaction motive is necessary to arrive. Since the availability of money is prominent for transactions so its demand cannot be sidelined. With the passage of time, transactions tend to increase and so will the income rise with a rise in the GDP and that directly increases the transaction motive.
As mentioned above that the uncertainty of future influences the demand for money. Humans are not aware of any change that will occur in the future and any unexpected expenses that will arise in the future, so for that the demand for money becomes a precautionary motive. Precautionary motive require demand for money whenever there is some unexpected payment to be done.
The value and demand of an asset heavily depend on its opportunity cost and the rate of return. Money is also an asset, but results in depreciation during inflation and will provide no rate of return no matter for how long its been saved or holding it. But in a scenario where it’s been invested or lent to someone it might provide an opportunity cost in the form of interest earned on it. But if these conditions involve risk, and that becomes the main attraction for holding the money and speculative motive demand for money arises.
The legislative branches of the government hold and implement the fiscal policy for every country. Government expenditures and the taxes are defined as the two main instruments of the fiscal policy because government needs to finance the expenditures that it undertakes to fulfill the demand of goods and services of people and to finance those expenditures it collects taxes from the people.
The government can either be in deficit or surplus depending the number of people paying the taxes. When the payments surpass the expenses, the government stays in budget surplus, but if the case is opposite, i.e. expenses surpass the tax payments, then it results in a deficit and the term national debt come into existence. To fulfil or overcome that deficit in the budget, the governments borrow money or take loans from other nations or international financial institutions like the world bank and IMF thus increasing the national debt.
Governments taking loan from other nations for the fulfilment, expenses continuously increase the national debt and stays in the credit line because the money supply stays constant. With loans comes interest that shows an increasing trend thus resulting in increase debts. This situation eventually gives rise to aggregate demand and country has to deal with inflation that brings its own charms and result in making the situation even worse. So keeping the national budget balanced a government needs a balance in income and expenses.
The nations central bank is responsible for making the monetary policy taking in account open market operations and the changes in the discount rate and reserve requirements. When the banks need to borrow the reserves to meet their reserve requirements, the central bank charges the interest known as the discount rate. The flow of many depends heavily on the discount rate. Banks will hold the money flow if the central bank sets the discount rate high on the other hand low interest rate will encourage the smooth flow of money and encourage the investments.
When the central bank is using its instruments of monetary policy to increase the supply of money, it is said to follow the expansionary monetary policy. To the contrary, if the central bank is reducing the supply of money using the instruments of monetary policy it is undergoing contraction monetary policy. This theory provides the information that the quantity of money and the price level are directly proportional; i.e. increase in the quantity will increase the price.
Monetarists have criticized the expansionary monetary policy stating that it only encourages households to expand, thus increasing the aggregate demand and results in increase surplus. According to the monetarists expansionary monetary policy serves better only in the short run while in the long run it results in inflation due to the destabilization in the price level. They are of the believe that price the growth rate of the money supply and the real growth rate should be kept equal and without causing inflation or deflation the monetary policy should accommodate the increase in real GDP.
Perfect competition needs five characteristics to be fulfilled to call any market perfectly competitive. These characteristics are, all the firms should be selling the same or identical products. Have no control over setting the price. The market share is distributed among each other in small proportions. The buyers should have complete knowledge and information about the product and their prices. No entry and exit barriers.
Unlike monopoly perfect competition serves better for the industry as well as for the buyers as well. Perfect competition provides consumers with many options in selecting the products since there are many sellers and sellers have the advantage in setting the price. Also, consumers gain the bargaining power.
Monopoly, unlike perfect competition, serves best for firms rather than consumers. Monopolistic market has only one firm that’s is handling the market and has no competition. The reasons a company enjoy monopoly are the entry barriers that discourage new firms to enter the market. Also, there are no substitutes of the products the firm is producing that allows companies to enjoy a monopoly. Factors like patents, limited access to resources and large start up cost discourages companies to enter the market. Some markets where there are large economies of scale like electricity, gas, oil, etc. firm enjoys natural monopoly.