Understand the language of economics
Economics is the study of how societies, governments, businesses, households, and individuals indulge in allocation of resources as resources are limited in response to unlimited human needs. The language of economics is all about how a person utilizes limited resources for the satisfaction of unlimited wants such that it results in maximum satisfaction. This is the subject matter of Economics.
As people live in an economy, it is imperative to study economics because economics affects almost every activity happening in the world. Everyone is a part of economic system where economic activities take place every minute. Economics is based on the concept that human wants are infinite and keep on changing and evolving constantly resources against which resources available are limited and scarce. This excess of wants over what can be produced with the aid of limited resources available is the essence of economics. This brings about the basic economic problem of scarcity. Thus, in result brings the choice of what to produce, how to produce and who will finally consume the finished products. The study of economics helps people in making choices in relation to business entities driving to gain profitability, consumers seeking for more of less quantity of goods and services. It also aids government in trying to make policies in a manner that aims at welfare of society.
Economics depicts the behaviour of business organisations in relation to taking decisions about allocation of scarce resources to fulfil the needs and preferences of its wide base of customers. It includes the factors that determine the demand and supply of products and services of an economy. The economic decision of what to produce of business organisations is based upon pricing mechanism. Higher price of a product or service means utilisation of more resources in production whereas lower price implies optimum utilisation of resources in production and diverting the remaining towards other productive uses. The decision of how the commodity is to be produced is based upon cost of factors of production, their availability and productivity. In relation to British Cheddar cheese, study of economics is imperative as it helps the organisation involved in its production in understanding the consumption and demand patterns of consumers. More demand for the product would mean more production of British Cheddar cheese by the company. Conversely, lower demand for product would imply company lowering the price of Cheddar cheese to retain the identity of product in market and not letting the demand fall beyond acceptance. Economics is all about the demand and supply of goods and services and the factors that lead to significant increase or decrease in their demand, supply and consumption. The pricing of British Cheddar cheese is also determined after considering the analysis of economic environment of cheese industry. Brexit is yet another factor that impacts the production, demand, supply and consumption of British Cheddar cheese. Study of economics is also imperative for business organisation to determine the export levels of cheddar cheese to countries across the globe and for consumers in UK and different parts of the world to decide their consumption levels.
Basic methodology and models used in Economics and their application to real-life situations
Economics is basically the study of production, distribution and consumption. Demand is the willingness and ability of a person to buy a product or service while supply is the willingness of sellers to sell a product or service. Demand and supply analysis is the study of how buyers and sellers interact to determine transaction prices and quantities of products. Prices reflect both the value to buyer of next substitute product (opportunity cost) and cost of that unit to seller. The relationship between demand and supply determine the production levels of a product.
Law of Demand states that all other factors remain constant, higher the price of a good, the less will be demand for that good. The quantity of product purchased at higher price is less because as prices of product goes up, so does the opportunity cost for consumers to buy that good. This results in unwillingness of consumers to buy that product at higher prices and replacement of products with substitutes in some cases. Demand relationship with price is a downward slope.
Law of Supply states that higher the price, higher is the quantity supplied. Unlike the law of demand, the supply relationship shows an upward. Producers supply more at high price as this means larger supply at high prices resulting in larger revenue for them.
Equilibrium is a state when supply and demand of a product or service are equal. At this stage, allocation of goods is most effectively done as the quantity of goods produced is the state as the quantum of goods supplied. Normally, everyone in the economy is satisfied with this economic condition. It indicates that at a constant price, suppliers are able to supply what they have produced and consumers are able to get what they demand.
Shifts in supply curve takes place due to change in prices of factors of production, prices of substitute goods, technology, taxation policy, goals of firm and number of firms present in an economy. The supply curve can shift to either left or right depending on changes that occur in economy.
Shifts in demand curve takes place due to factors like change in price of complementary goods, price of substitute goods, income of people, taste and preferences, expectation of change in the price in future etc.
Change in demand and supply largely impact the prices of products. A decrease in demand and an increase in supply lowers the price of a good. An increase in demand and a decrease in supply raises the price of a product. When there is both increase in demand and supply of product, the change in price is uncertain as the increase in demand raises the price while the increase in supply lowers it. On the other hand, when there is both decrease in demand and supply, the change in price is uncertain as decrease in demand lowers the price while the decrease in supply raises it.
Demonstrate the ability to analyse real world situations that occur in economy
In context of Brexit, Ireland supplies cheddar but now look at for switching to mozzarella production. During threats of Britain crashing out of the EU on British market for cheddar every year. It has created many impact such as
It can be analyse through macro and micro economy issues which includes monopoly, inequality, volatility in prices, recession, inflation and so on. Firstly it involves externalities which is one of the most recurring problem because there are several impact of external effects on economics decisions. It supports to negative positions, that managers can not take them into business account during supply of British Cheddar Cheese. This is the reason of overconsumption in order to complete all taxes and duties in export and import procedures. Moreover, it creates several personnel problems during market failure for instance: tax evasion. Secondly, monopoly phase also indicate many issues by which firms can acquire monopoly power. Through this cognition, an enterprise enables for set high prices of British Cheddar Cheese to gain high level of profits from their potential consumers. It also emphasize on compensation structure which addressed to lower wages to workers for making. For solving this problem, a country's government can encourage to competition in ethical manner for example, franchising and price setting for to control on excessive price. Thirdly, poverty in economic condition that create when normative opinions are occur for instance: injustice in distribution resources. In context of British Cheddar Cheese businessmen can present their suggestions for decreasing marginal utility-grade of wealth, if it has small proportion of the grouping. Moreover, inequality create problems in understanding how to reduce poverty. For this British Cheddar Cheese, here manager need to select a aim of perfect equality for decreasing or finish poverty. Fourthly, In many countries have volatile price for agricultural market. It arises, when supply scale of British Cheddar Cheese shows excess level so consequently people face lower revenue situations. Last phase is irrational moods, In some cases, people have meet with volatile prices during irrational enthusiasm.
Macro economic problems indicate to unemployment situations in advance economy. It arises when people face laid off problem during recession period of time. This shows a depressed circumstances of economy which create through instability in demand and supply of British Cheddar Cheese. It includes recession, this period is negative time which addressed to unemployment during bad economy growth. Secondly inflation, these high rate creates solemn difficulty, in this case prices rise more faster in comparison of nominal interest rate. Apart from this, it create many confusions and uncertainty for a firm. Secondly, during small sum of amount of payment, an country importing maximum goods and services than exporting. In developing countries, it is a big problem when payment balance crises arise which lead to devaluation of a country's currency. Moreover exchange rate can also create economical problems for instance euro not able to change currency for eurozone people. It occurs during value of medium of exchange is fall. This directly affect to international target customers of British Cheddar Cheese whose can not serve this product during low value of currency.