Essay Sample on Economics Systems

Introduction

By definition, an economic system is the way limited resources get distributed within a given geographical l are or in a particular society. There are many economic systems, but the major ones are only four. This includes command, traditional, mixed and market economy. Each of these four types of economic systems has its advantages and disadvantages. Concerning traditional economic systems, these one relies heavily on traditional beliefs when distributing resources and therefore everyone in that society understands his or her roles in the growth of the economy (Economics, 2016, 12.)

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Command economy, on the other hand, is a system that is ruled under one dominant power that determines the way resources are going to be distributed, people in these types of economy do not influence the outcome of resource allocation. Mixed economy, on the other hand, is a blend of command and market economic systems (Economics, 2016, 22). Finally, a market economic system is a market that is characterized by free markets and does not in any way allow any government to be involved in its affairs. This is an economic system that discourages the involvement of the government as it tries to stop the biases that come with the government due to its powerful nature.

Supply and Demand

The law of supply and demand is one of the critical concepts in microeconomics. This is because they help to determine, supply of goods and demand of the same products. The law states that, as prices lower, more buyers are willing to buy certain goods thus the demand in this case rises. However, when the costs of the products rise, the same buyers are willing to buy less for the same amount of goods (Becker, 2017, 12). On the other hand, when prices of the same goods lower the producers will always try and supply low because it is not profitable for them to do so. However, when the prices of the same products rise, the same supplier is willing to supply more because it is profitable to do so. To reach into a consensus, the supply curve and demand curve always shift so that a market equilibrium can be reached. Under the market equilibrium both the suppliers and the buyers are comfortable to buy and sell at the side prices.

Equilibrium

By definition, a market equilibrium is that market state where there exists no pressure whatsoever for the market to change. Consequently, both the supply and demand co-exist peacefully and as a result, the suppliers are willing to sell their products at the equilibrium price whereas the buyers on the other side are also comfortable with the prices that the sellers have set and therefore they are willing to buy those goods at that equilibrium price (Cooter, and Ulen, 2016, 5) Mostly the equilibrium price is arrived at due to the constant change of both the supply and demand curve till finally the equilibrium price is met. This just means that the equilibrium points or the market equilibrium are only satisfied when the quantity supplied equals the quantity demanded.

Elasticity

Elasticity in economics can either comes in two forms, mainly either on the demand side or the supply side. On the supply side, the most crucial elasticity under this category is the price elasticity of supply (Cowen, and Tabarrok, 2015, 23) Price elasticity of supply somewhat explains the extent to which supply is affected by a change in price. Some of the determinants of this elasticity include the availability of raw materials and the complexity of the product.

On the other hand, the price elasticity of demand, on the other hand, determines how much the market of goods is affected by a relevant change in price. Some of the determinants of price elasticity of demand include product necessity, close substitutes availability, time horizon relevancy. Demand can either be elastic, unit elastic or inelastic. The same also applies to supply, and it can either be elastic, unit elastic or inelastic.

Production and Costs

One of the essential concepts in production is the film. This is because the firm is responsible for turning factors of production into finished goods that can be consumed by the customers. Cost, on the other hand, are the payments incurred for the factors of production as well as the opportunity costs that are produced by the owners of the firm (Weedon, 2017, 32) Consequently, the total costs are the accounting costs plus the opportunity costs. The production process can either be divided into the long run and the short run. However, short run and long run may not necessarily refer to a specified period of time but the level of flexibility the firm has when changing the level of output. The manner in which the factors of production are combined to produce consumable goods is presented in the production table. Consequently, the production table can be summarized in a production function

Market Structure

Market structure describes the characteristics of a market which can either be competitive or organizational. Consequently, those characteristics refer to the type of pricing policy and competition that the markets follow. There are four major types of market structure. This includes perfect competition, monopolistic competition, oligopoly, monopoly and monopolistic competition (Cooter, and Ulen, 2016, 55) In the market structures such as the monopolistic and perfect competition, these types of market structures are highly characterized by competition.

This competition has not only been beneficial to the consumers as a whole, but it has also led to innovation. As buyers try to outdo each other on the quest to getting more customers, sellers try to minimize their prices while also considering the quality as much as possible. Consequently, buyers enjoy goods that are of high quality at reasonable prices. As buyers try to woo their customers, they also offer extra services to their customers so that they may continue buying for them even in the future.

Consumer Surplus

Consumer surplus can be defined as the difference between the price of what the buyer wants to buy a particular good or service and the actual price that the consumer ends up buying for that particular good or service. Indeed, every consumer has his or her price preference that he or she is willing to pay (Lariviere, 2018, 92) Once the price is not met, then the buyer won't buy the good or the service only because he or she sees it as either unworthy or expensive. To calculate a customer's consumer surplus, one uses the supply and demand functions. This can practically be done by drawing both the demand and the supply curves, establishing the prevailing price in the market, connecting the market price and the price axis and finally, doing a calculation of the upper part of the triangle.

References

Becker, G.S., 2017. Economic theory. Routledge.

Cooter, R. and Ulen, T., 2016. Law and economics. Addison-Wesley.

Cowen, T. and Tabarrok, A., 2015. Modern principles of economics. Macmillan International Higher Education.

Economics, G., 2016. Grazing Economics.

Lariviere, M., 2018. Priority Queues and Consumer Surplus. Available at SSRN 3241559.

Weedon, A., 2017. Victorian Publishing: The Economics of Book Production for a Mass Market 1836-1916. Routledge.