Summary report on academic topics and concepts

¶ … web activities that were to be completed in relation to this chapter.

Summary and Web Activitity

The main concepts in economics include; resource allocation, scarcity, competitive advantage, the market system, and the role of supply and demand. Resource Allocation is the efficient allocation or placement of resources, natural and financial, in various economic activities. Scarcity can be defined as the limited number of resources facing unlimited human wants. Another important concept is competitive advantage. When a firm earns a profit which is greater than the average of the profit of the industry in which it is operating then it is said to run in competitive advantage. A firm gains competitive advantage by providing benefits that are similar to its competitors at a lower cost or it can also attain competitive advantage by providing benefits that are greater than its competitors and thus creating superior value for its customers. (Schiller, 2010)

Market System

A market system can be defined as a collection of markets for different goods and services. A market, on the other hand, is a place where buyers and sellers meet each other to buy and sell goods, or a set of goods, that are each other's substitutes. Demand and supply of goods play an important role in determining the value of goods in a market system. Demand can be defined as the quantity of goods that an individual or set of individuals is willing to buy at a particular price in a given period of time. Demand usually has a negative relation with price, that is, an increase in price will lead towards a decrease in the demand. For example, people would be willing to buy more sugar at a lower price but if its price increases, people will buy lower quantities then. Supply, on the other hand can be defined as the quantity of goods that the manufacturers or sellers are willing to supply to the market at a particular price, in a given period of time. The supply has a direct relation with price, that is an increase in price would lead towards an increase in supply. For example, in third world countries, suppliers stock various items and then sell them when the price of these products increases. (Schiller, 2010)

In a free economy, when a market runs out of equilibrium, the forces of demand and supply operate automatically to bring the market back into equilibrium. Market equilibrium is the state where demand of a product is equal to its supply. Where as in a command economy there is a central authority that intervenes in the market system when the demand, supply or price goes out of hand. It uses tools such as price ceiling (setting an upper limit for the prices above which the prices cannot increase) and price floors ( setting a lower limit for the prices below which the prices cannot decrease) to control the price, demand and supply. (Schiller, 2010)

Comparative Advantage and Its Importance

Comparative Advantage can be defined as an ability of a firm or a government to produce goods at an opportunity cost which is lower than its competitors. It enables the government to increase its exports and in turn increase its Gross Domestic Product (GDP) and it enables the organizations to increase its sales margin and earn greater revenues and profits. (Schiller, 2010)

Effects of National Economic Policy on: Inflation, Unemployment, and Growth

By altering its national policy effectively an economy can control inflation and can trigger growth and employment. By using expansionary monetary and fiscal policy, government can increase investment, employment and growth, by increasing money supply and government expenditures. Whereas, by using contractionary monetary policy, government can decrease inflation by decreasing the supply of money. (Schiller, 2010)

Effect of Fiscal Policy on Balance of Trade

Expansionary fiscal policy has a positive impact on the balance of trade account as it increases government expenditure, production and exports. Due to increase in exports the trade deficit decreases. Whereas, the contractionary monetary policy has a negative impact on the balance of trade account as it leads towards a decrease in government expenditure, production and exports. Because of the decrease in exports, the trade deficit increases. (Schiller, 2010)

Money and Its Functions

Money can be defined as anything which is generally accepted in exchange for goods and services and which acts as a medium and store of value. The three major functions of money are; 1) it acts as a medium of exchange and is accepted as a payment for goods and services, 2) the value of different products is measured in terms of money, 3) it acts as a store of value because it is generally accepted as a medium of exchange and has a stable value. Banks usually create money in the economy by issuing loans and by buying securities from the market. (Schiller, 2010)

Keynesian and Classical Economic Policies

Classical economists believe in the concept of laissez-faire, a marketplace which requires no or very little government intervention. Classical theories rely on individual decisions while allocating resources and measuring value of goods. Whereas, Keynesian economists rely on value theory while calculating the value of a good. They define the market place by using aggregate demand and government spending. In addition to that, they also rely on the fact that a nation's monetary policy can heavily influence its economy. Classical theories usually focus on long-term effects, therefore, inflation, taxes and laws can be some important factors of these theories, whereas, Keynesian theories focus on short-term results that are aimed at immediately removing the disruption from the market. (Schiller, 2010)

Web Activities:

Web activity 1 (a)