Principles of Economics (Coursework Sample)

Assignment 1: Principles of Economics
Annette Fininen
Prof. Wolfson
ECO 100
August 1, 2013
Principles of Economics

Supply and demand
Supply and demand are vital economic concepts. Supply describes the total amount of particular goods and services that is available in the market to the consumers. It refers to the quantity of goods or services that suppliers are willing and able to take to the market at specific prices. Correlation between the price and the quantity of a product or service that is supplied to the market is called supply relationship/law of supply. Demand refers to the quantity of goods or services that is needed by buyers in the market. Demand is influenced by the price of a commodity or service in the market. Price and demand have an inverse relationship whereby as the price goes up the demand decreases and has the price goes down demand of a commodity or service increases. This relationship is known as the law of demand. The law of demand states that when all factors are held constant, the lower the price, the higher the quantity demanded and the higher the price the lower the quantity demanded. Price affects both the supply and demand of products and services in the market.
The relationship between demand and supply is best described using the demand and supply curve. A point of intersection of the two curves is a point of equilibrium whereby the quantity demanded is equal to the quantity supplied in a market. The price at this point of intersection is called the equilibrium price. The equilibrium price is the price where the quantity demanded matches the quantity supplied. At this price, Consumers are satisfied and are willing to buy with no hesitation. The changes in equilibrium depend on price of a particular product, for example, when company has a shortage of a product the price will raise. The company will try to get the most for their product and in turn if there is a large quantity of product the price has to fall in order for the company to sell as much as possible to make a good profit. Consumers will only purchase a product that is expensive if it is extremely necessary but they will not purchase in a large quantity. When there is a shift in price, the market has to reach its equilibrium once again (Krugman & Wells, 2006).
Market structure
A market is defined by the strength of its sellers and buyers and the type of competition that that exists in the market. There are four basic types of market structure and they include: pure competition, pure monopoly, monopolistic competition, and oligopoly. The most common and most utilized market system in North America is the perfect competition. In this system, there are many buyers and sellers of a similar product which all look the same, and with the investment cost being low. In perfect competition system, the product is relatively easy to produce, and the firms in the market are price takers since they can only accept the market price. The next most common system in the U.S. is the Oligopoly system. Unlike the perfect competition system, the oligopoly system is dominated by only a few sellers. High investment costs make it difficult for many people to join this market system, with product that is offered being similar but slightly different (Mankiw, 2007).
The least most common system among the market systems is the Monopoly system. In a monopoly, there is only one seller of a good or a service with consumers having no other option. This system allows a single company to control the price without ever having the fear of losing business to the competition. Monopolistic completion is a market system that has relatively large sellers having similar but non-identical products and services. This market is characterized by large number of firms, differentiated products and easy entry and exit into the market. In perfect competition the price is dictated by the market. In the oligopoly system, the role of the economist may be to build alliances...