This paper is to be written like the previous one which you about “why understanding economics is important?” but this time it is gonna be a different topic and might be longer.
So I would prefer a 3-page paper because it will cover a lot of parts (but not to be long or much detail – we are limited by the pages)
I would say there are 2 sections on this paper.
1st: write in 9 separated paragraphs due to the 9 dots (2 pages)
– Describe is meant by an increase in demand (supply) or a decrease in demand (supply)
– Determine the impact of a price ceiling and a price support using words and a graph.
– List the expenditures and income approaches to our national economy and how they are two different ways of looking at our national economy.
– Name components of GDP and their relative importance as a percentage of GDP.
– Compute Real GDP using a GDP deflator.
– Describe a business cycle and express it graphically.
– Explain the problems associated with the recessionary and recovery phases of the business cycle.
– Contrast a flow and a stock variable.
Okay, part 1 looks a bit messy right? But you don’t have to be in detail, just briefly look into the internet and research for them.
2nd: It is a discussion that will focus on what markets really measure. Why are they a good way to organize economic activities? Students should think about the ‘fair-ness’ of markets. For example is it fair that many people cannot afford college and thus do not go?
So Part 2 normally answer or research for it and write (1 page or 2 paragraphs)
YES, this time please input your citations. BUT also this is not a paper to be submitted (we don’t have to be formal I meant)
An increase in demand refers to a situation in the market when the consumers’ willingness and ability to purchase a product surpasses than the product’s availability (Jacobs &Rapoport, 2004). An increase in supply, on the other hand, refers to the market situation when the availability of products is higher than the buyers’ ability and willingness to purchase. An increase in both demand/supply leads to the shifting of the demand/supply curves to the right and vice versa.
Price ceilings keep the prices of commodities from increasing beyond a particular level. Setting a price ceiling beneath the equilibrium price leads to a situation in which demand exceeds the supply. Price supports are legal instruments, such as subsidies, that are set by the government to prevent the price of certain commodities from falling below the equilibrium level (Khan Academy, 2018).
Price Ceilings and Price Floors.
Source: Khan Academy (2018)
GDP, abbreviation for Gross Domestic Product, refers to the monetary valuation of the final goods and services available in a country within a specific period, usually a year (Brezina, 2012). GDP has four components: private consumption expenditure, government expenditure, investment expenditure and net exports. GDP gives an overall depiction of the state of a country’s economy. The importance of each of the four components of GDP may vary from a country to the other depending on the expenditure and the value of exports and imports.
According to Brezina (2012), the income approach to measuring a nation’s GDP involves the valuation of all the incomes made by the households living in the country within a year. The expenditure approach, on the other hand, is the measure of all the amount spent on the products produced in a nation within a year. The difference is that the income approach uses earnings while the expenditure approach looks at expenses.
The first step in calculating Real GDP using a GDP deflator involves getting the Nominal GDP. This is the final products’ quantity value multiplied by current-year prices for the base year. The real GDP is then calculated as the valuation of the final goods and services quantities valued at prices for the base year. This is to eradicate the influence of rising prices on the GDP thus gauging the “Real” economic activity (Mankiw, 2014).
A business cycle refers to the natural and periodic increase and decrease of economic growth. The cycle is characterized by rises and falls like in a wave; that is a boom in one stage and a collapse in the next period. The up and down fluctuations are influenced by economic activities in investment, production, credits, employment, wages and prices.The four phases of a business cycle are prosperity, recession, recovery and depression (Lumen, n.d.).
Source: Lumen (n.d.).
During the recession phase of the business cycle, business activities slow down. Demand for products begins to fall and the overproduction of goods and services stops. Investment plans are ceased and the profits, sales, output and employment all decline. In the recovery stage, there is an occasional overproduction of products thus leading to excessive supply. Inflation may also arise due to business expansions, over-lending by banks and hyper-active stock markets (Tucker, 2008).
A stock available is quantified at a specific period. It also manifests the quantity that exists at the specific time of valuation, for instance, January 25, 2018. This stock may have amassed in the past. Comparatively, a flow variable is quantified over a time interval. This implies that flow is appraised per unit time (Hall & Lieberman, 2010).
Section 2: Markets Are Usually a Good Way to Organize Economic Activity
“Markets Are Usually a Good Way to Organize Economic Activity” is Mankiw’s sixth principle of economics. Mankiw suggested that decisions made by a planner are substituted by those made by the market participants in a market economy (Hakes&Mankiw, 2011). The most important aspect is the price of products. Organizations have the liberty and ability to say what to make and how much to make. Firms also independently decide who to hire and what to produce. Households, on the other hand, can determine their places of work and where and what goods and services to purchase. Firms and households, in a market economy, interact in the marketplace where prices control their interaction.
Although Mankiw claimed that these markets enhance the economic well-being of participants, a market economy is not fair. This is because the only persons who take part in the interactions in these markets are only the people with money. The roles of agents, brokers and middlemen are largely reduced. Moreover, since the degree of participation is reliant on how the amount of money a person has, rich people can buy everything they want. This creates a problem since resources are scarce. Firms may, therefore, exploit the poor people in the economy. More significantly, the role of the government is reduced in a market economy thus leaving prices to be determined by the market.
Brezina, C. (2012). Understanding the gross domestic product and the gross national product. New York, NY: Rosen Pub.
Hakes, D. R., &Mankiw, N. G. (2011). Study guide: Principles of economics, sixth edition, N. GreogryMankiw. Mason, OH: South-Western Cengage Learning.
Hall, R. E., & Lieberman, M. (2010). Macroeconomics: Principles & applications. Australia: South-Western Cengage Learning.
Jacobs, P., &Rapoport, J. (2004). The economics of health and medical care. Sudbury, MA: Jones and Bartlett Publishers.
Khan Academy. (2018). Price ceilings and price floors. Retrieved from https://www.khanacademy.org/economics-finance-domain/microeconomics/consumer-producer-surplus/deadweight-loss-tutorial/a/price-ceilings-and-price-floors-cnx
Lumen. (n.d.). Reading: The Business Cycle: Definition and Phases. Retrieved from https://courses.lumenlearning.com/introbusinesswmopen/chapter/reading-the-business-cycle-definition-and-phases/
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Tucker, I. B. (2008). Survey of economics. Mason, OH: South-Western Cengage Learning.