Economics an Overview & Article Analysis

In business it is essential for owners to consider important factors when mapping out their business objectives. Economics used as a tool to solve coordination problems. They include what and how much product to produce, how to produce their product, and for whom they are producing. In order to effectively answer these questions, economics is used. Colander (2006) describes economics 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” (p. 4). The foundation of economics is based on several factors that assist in understanding an economy.

These factors include economic reasoning, economic insights, economic institutions, and economic policy options. Economic reasoning is a way of thinking that weighs an option based on costs and benefits. Terms such as marginal costs, marginal benefits, and opportunity cost explain economic reasoning in more detail. Marginal costs and benefits are the additional cost and benefit to you respectively over and above those that you have already obtained. Opportunity cost is the cost forfeited by not selecting an option in favor of another. Insights in economics are the theories that have been discovered by economists that are useful in understanding trends. One of the most noted is the invisible hand theory. Economic institutions include but are not limited to laws, common practices, and organizations in a society, are the basis for understanding whether economic theory can be applied to reality (Colander, 2006, p. 14). It is very common for economic institutions to vary by country. Finally, the action or inaction taken by the government to influence economic actions are called economic policy options. These options are considered on a large scale because they have an effect on the entire economy as a whole.

Understanding the fundamental concepts of economics allows us to analyze laws that have a direct bearing on the economy. These laws and theories are essentially the backbone of how economics is used and studied. The law of demand can be expressed by stating that as long as all other factors remain constant, as prices rise, the quantity of demand for that product falls. Conversely, as the price falls, the quantity of demand for that product rises (Colander, 2006, p 91). Price is the tool used that controls how much consumers want based on how much they demand. At any given price a certain quantity of a product is demanded by consumers. As the price decreases, the quantity of the products demanded will increase. This indicates that more individuals demand the good or service as the price is lowered. This can be illustrated using the demand curve. The demand curve is a downward sloping line that illustrates the inversely related relationship of price and quantity demanded.

In addition to the law of demand, the law of supply also serves as the second major resource in studying economics. The law of supply states that with other factors remaining constant, as the price rises, the quantity of the product supplied also rises. Conversely, as the price falls, quantity of the product supplied also falls (Colander, 2006, p 97). The law of supply is refers to how producers can effectively substitute the production of one product for another (Colander, 2006, p. 95) Again, price is the mechanism used to determine the quantity of the good being supplied. The graphical representation of the law of supply, an upward sloping line, indicates the direct relationship between price and quantity supplied.

Both laws of supply and demand indicate that they remain true if all other factors remain constant. However, often times many factors do not remain constant and the price and quantity of goods demanded and supplied often change. These changes can contribute to one of to options, a movement along the demand/supply curve or a shift in the demand/supply curve. To begin, a movement along the demand/supply curve indicates that the price is the factor that has changed. If the price increases, the quantity demanded falls while the quantity supplied rises. In opposition if the price decreases, the quantity demanded rises while the quantity supplied falls. Price is the only factor that contributes to a move along the demand curve (Colander, 2006 p. 92). Changes in some other factors lead to shifts in the demand/supply curves.

The shift factors for supply curves and demand curves vary. When the demand curve shifts it can be a result of these factors: society’s income, prices of other goods, tastes, expectations, and taxes on subsidies to consumers (Colander, 2006, p. 92). As an individual’s income rises, more often they are able to afford options that weren’t available to them prior. In addition, demand can shift based upon how other goods are priced relative to how the good being demanded is priced. A consumer may want an