Demand And Supply Essay

1564 Words7 Pages
Demand and supply: - Economics deals with the problem of allocating scarce resources to satisfy needs in an efficient way. An economy answers four fundamental questions: (1) What to produce (2) How much to produce (3) How to produce and (4) For whom to produce. - Micro: Talks about economics in firms, households, etc. - Macro: Talks about aggregates and how economics acts a hall. - To obtain more of something, we must sacrifice something else = Trade off = the opportunity cost, which measures the cost associated with the best alternative that we have to give up to obtain what we want. - Marginal changes = small, incremental adjustments to an action plan. Rationality implies that when making a decision, people compare the costs and the benefits associated with it and that they choose the alternative for which the marginal (additional) benefits exceed the marginal costs by the largest amount. - Efficiency = Society gets the most that it can from its scarce resources - A market economy = an economy that allocates resources through the decentralized decisions of many cias as they interact in markets for goods and services and markets for factors of production. = allows competitivity and specialization Characteristics: o It might have failures: Externalities (affect a third party and it doesn’t affect price) and market power (Group of consumers or producers have power to transform price) o There are two markets: the market for factors of production and the market for goods and services and two types of economic agents: households and firms o There is another flow moving around: a flow of Money. On one side (firms pays…) wages, interest, profits and the other side (households) spent on goods and services made by the firms. - The Production Possibilities Frontier

More about Demand And Supply Essay

Open Document