Many factors influence the course of business and the economic climate as a whole. Supply and demand, price elasticity and how characteristics of the economy are assessed and controlled are factors that can greatly affect each and every consumer, business and government worldwide. It is important to have a basic understanding of economic principals.
The law of supply is a basic economic principal that correlates the relationship between price and quantity. This law simply states if price increases so does the quantity. Price and quantity follow the same positive upward pattern. This can be seen when manufacturers increase production thereby creating the ability to offer more products for higher prices which results in greater profit. An individual producer cannot determine the market. Market supply curves are determined by the comparison of all producerâ€™s quantities and pricing.
Pricing is affected by what is described as elasticity or ...view middle of the document...
There is no substitute for toothpaste and it is also a relatively inexpensive product so, demand for it too, can be considered inelastic. Crest toothpaste, however, is a brand name and there are other very similar toothpastes available. Consumers would be inclined to purchase another brand if the price were comparably less therefore, demand for it would be considered elastic. Ketchup is a one of a kind inexpensive condiment, there are no others like it so demand would be considered inelastic. A specific operating system like Microsoft Windows could be quite costly; however although substitutes for Windows exist, the loyalty and dependence on Microsoft Windows product is such that it makes demand for it inelastic. A diamond bracelet would be considered elastic as they are typically high ticket items and there are less costly alternatives that consumers would purchase if the price on a diamond bracelet were perceived as unaffordable. The availability of affordable replacements will drive down demand.
French fries, airport screening and medical care are private goods because each of these can be consumed individually and private owned firms can profit from them by excluding people who do not pay. French fries and medical care are purchased and consumed by the individual. Airport screening, although not directly paid for as a good, is calculated into the price of the airline ticket the individual purchases. Because this is used individually and one may be excluded for non-payment, it is considered a private good. Court systems and mail delivery, on the other hand, are considered public goods. Use of these goods does not have an effect on anyone else and the consumer cannot be excluded for non-payment.
The law of supply, supply curves, pricing elasticity or inelasticity and recognizing characteristics of public and private goods are all elements of basic economic principles. Understanding how these things affect pricing and goods and what contributes to market changes can help us better assess the current economic climate.
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