Week 1 Discussion

Luiza V. Harper

South University

ECO2072: Principles of Macro-Economic SU02

Hector Morales

March 24, 2022

The economy is a subject high school seniors should become aware of the interworking since adulthood is on the horizon. An economic system is a conforming association between businesses, countries, and individuals worldwide. The interest in understanding basic economics is the introduction of the different methods used worldwide. When observing the economic systems existing in the world today, we will find four systems. The four systems are traditional economic, command economic, free market, and mixed economy.

The traditional economic system is based on customs, family relations, and traditions. This system is generally found in poverty countries; the desire for profit is not an ambition for these areas. Traditional economies in underdeveloped regions rely on their survival needs; bartering and trading are a way of life for these cultures. In the free market system, the business and the individuals are self-interested in allocating resources through production and buying decisions with no or some government interference. A central power controls the command economic system; the USSR is a prime example. This system can distribute the resources and merely focus on society's needs of the community, not individuals. A mixed economy system is a mixture of different types of systems. This system is less government own, except for some major businesses. Government regulation is present within this system; France is a country that has a mixed economy system. The capitalist society of the United States and the economy is a free market.

The first concept that a country and business should differentiate their products and trade to become rich was the first concept of Absolute advantage. The hypothesis in economics and international trade is Absolute advantage and Comparative advantage. The Absolute advantage is based on the efficiency of a company producing a good or service. The premise is that the company will not make a good with low or no demand that will limit their losses. The efficiency and higher level of production proficiency allow a company or country to produce a superior good or service with demand at a lower cost than the competitor. This includes the The comparative advantage focus on an opportunity of cost, the choice that will increase profit. Comparative advantage allows the company or country to focus on the cost factor between different products or services to produce or provide. The company or government will evaluate the cost factor between good A or good B to determine what is given up with the choice of the good produced.

The effect of supply and demand is a economic concept that all are effect by usually on a daily bases, and need to have a clear understand. It requires the consumer and the seller to agree on a mutual point price for the transaction. Scarcity is a factor that effects the economy daily due to the human nature focus on their entitlement instead the needs.

The figure of speech, the invisible hand, is the unseen factor that affects and moves the free-market economy. The unseen market factors that have consumers' actions of self-interest satisfaction society is known as the invisible hand. The invisible hand is for the betterment of the social good. The invisible hand concept is closely related to the capitalist society, the personal interest, personal riches, and little or no government intervention. The invisible hand is the competition and self-interest that balances the free market.

The circular flow diagram illustrates exchanges within the economy such as goods, money, resources, and services between sectors. Firms and households are part of two markets, product, and resource. The market of product Firms are the sellers, and Households are buyers. The market of resources Household is the seller, and the firm is the buyer. The market of resources Household sells labor, land, and capital to the firms in the markets for the factors of production. The firm sells goods and services to the Household in the production factor. The resource of production flow from households to firms, and goods and services flow from firms to households. The money flow of a circular flow diagram, households spends or service and goods, the firm gains revenue, the firm pays wages, rent, and profit, and the Household earns income. The government sector receives taxes from the Household and the firms but provides subsidiaries to the business and benefits to the households.

The production of Possibilities model is a graph that shows what the production possibility is when allocating the resources for production. The production of two goods or products is not changing technology and production techniques but is used efficiently. The maximizing output of the two goods using existing resources. The below chart represents the opportunity cost and the trade-off of producing coffee product, B, versus product sugar D.

The worldwide market responds to events impacting the economy, from earthquakes, tornados, and war. Microeconomics and Macroeconomics govern the economy. Microeconomics studies individual decisions of using resources and pricing of products or services. Microeconomics observes regulations, taxes, and government decisions. Other principles of Microeconomics is the demand, supply ad equilibrium, cost and labor. Macroeconomics analyzes all industries and countries, not only a tiny sector, noting the inflation rate and economic growth.

Reference

Bondarenko, P. (2018, May 14). absolute advantage. Encyclopedia Britannica. Retrieved March

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The Investopedia Team. (2021, February 9). Circular flow model. Investopedia. Retrieved March

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Johnson, Peter. (2022). Production Possibility Frontier. Retrieved March 22, 2022, from

Majaski, C. (2022, February 23). What is the invisible hand in economics? Investopedia. Retrieved March 23, 2022, from https://www.investopedia.com/terms/i/invisiblehand.asp