Article_Analysis_Paper

Running head: ARTICLE ANALYSIS PAPER Article Analysis Paper University of Phoenix ECO 365 Principles of Microeconomics Dr. Cristina Sesler November 30, 2009 Article Analysis Paper In beginning the University of Phoenix’s Principles of Microeconomics, it is necessary to be able to comprehend the terminology. Key basic concepts include terms, economics, microeconomics, law of supply, and law of demand. By developing a thorough understanding of what each term is, one can begin to discuss the principles of microeconomics more accurately and efficiently. This paper will use the article Supply and Demand by Conant, 2006, the 2008 article Overview: Microeconomics written in Everyday Finance: Economics, Personal Money Management, and Entrepreneurship, and the textbook Economics, 7e by Colander, 2008 to help the reader grasp a further understanding of the difference between economics and microeconomics and what is meant by supply and demand. Economics is defined as, “the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (Colander, 2008). Colander, 2008 explains that coordination is a key word in the definition of economics because it has three separate references; “what, and how much, to produce, how to produce it, for whom to produce it” (Colander, 2008). These coordination questions are simple on paper, but are more complicated because they are being asked of and answered to every individual and each entity in the world. The problem results in the explanation that because peoples’ wants are endless, but they are limited in what is available to them. This realization results in the complication that all economies face the problem of scarcity, “the goods available are too few to satisfy individuals’ desires” (Colander, 2008). It is currently possible to regulate the needs and wants of all individuals in the world through the aid of technology and technological advances such as the Internet, but because of political strains, economics is divided in its studies. “The field of economics is divided into two basic areas of study: macroeconomics and microeconomics (the prefixes macro and micro are derived from Greek words meaning large and small, respectively)” (Overview: Microeconomics, 2008). Macroeconomics Macroeconomics is the study of whole economies from the top down, with special attention usually paid to large-scale phenomena such as the money supply, unemployment (joblessness), inflation (the general rising of prices), and the economic growth of nations. For instance, the question “What is the effect on the American economy of increasing the amount of money in circulation'” would be very likely to come up in a college class on macroeconomics. Overview: Microeconomics, 2008MicroeconomicsMicroeconomics, meanwhile, attempts to discover the way that each portion of the economy works; hence it focuses on the decisions of single individuals, business firms, industries, and levels of government. Questions such as “How high can gas prices go before Americans stop buying large automobiles'” are characteristic of microeconomics. Overview: Microeconomics, 2008Supply and Demand “Supply can be defined as the relationship between the price of a good or service and the quantity producers are willing and able to make available for sale in a given period of time, holding other things constant” (Conant, 2006). Demand is defined as “the quantity of a good or service that consumers will be both willing and able to purchase at any given price during a specific period of time, holding all other factors constant. Demand is, therefore, a relationship between price and quantity demanded” (Conant, 2006). Factors that lead to a change in supply include the demand for a product or service versus how much of the product or service is available for sale at different prices. The demand for a particular product or service is not always affected by price, the consumers’ income and wealth, as well as the price of other related goods play a factor in the purchasing decision consumers make. Supply also has its own nonprime factors that include “the prices of the inputs used to produce the product, the state of technology used to produce the product and the prices of other goods that are related in production” (Conant, 2006). Law of Supply The law of supply states that this relationship is a direct one. When the price of a good rises, holding other factors constant, producers will be willing to supply more of the product. The rationale for this law is that resource owners will want to use their resources in the most valuable way possible. Conant, 2006 Law of Demand the nature of this relationship between price and quantity demanded is so consistent that it is called the law of demand. This law states that the relationship defined by the concept of demand is an inverse or indirect one. When prices rise, other factors held constant, consumers will purchase less of the good, and vice versa. The rationale for the law is that when the price of a product changes relative to the price of other products, consumers will change their purchasing patterns by buying less of the now higher-priced good and purchasing more of other goods which are now relatively less expensive that satisfy the same basic wants. Goods that satisfy the same basic wants are called substitutes. Conant, 2006ConclusionUnderstanding the difference between supply and demand, and how they are affected by price and nonprime factors, is crucial to being able to acknowledge and accept the principles of microeconomics. The supply directly affects the price of a good or service, thereby adversely affecting demand, which is primarily limited by price. Conant, 2006 bases the entirety of this paper on the fact that “market process is generally modeled using the economic concepts of supply and demand. The plans/desires of consumers are embedded in the concept of demand and the plans/desires of producers in the concept of supply.” References Colander, David C. (2008). Economics, 7e. Retrieved from University of Phoenix. Conant, J. L. (2006). Supply and Demand. In B. S. Kaliski (Ed.) Encyclopedia of Business and Finance, 2(2nd ed., pp. 714-716) Detroit: Macmillan Reference USA Retrieved November, 25, 2009, from Gale Virtual Reference Library via Gale: http://go.galegroup.com/ps/start.do' p=GVRL&u=apolloOverview: Microeconomics. (2008). In Everyday Finance: Economics, Personal Money Management, and Entrepreneurship, 1Detroit: Gale Retrieved November 25, 2009, from Gale Virtual Reference Library via Gale: http://go.galegroup.com/ps/start.do'p=GVRL&u=apollo