How the economy works Essay Example | Topics and Well Written Essays - 750 words

How the economy works - Essay Example s to be made very carefully and after a lot of thought as it is important to understand that every choice made will also mean forfeiting another choice. This question can be answered only after proper analysis of the resources that are available in an economy. The one thing that is also kept in mind is the true cost. This is one aspect of the choice that economist are interested in. as mentioned earlier while making a choice the chances of forfeiting another choice are always possible. Hence economists generally use the concept of opportunity cost which allows them to analyze the value that must be sacrificed or given up (Stonebraker, 2008). This question deals with the determining how to use the factors of production to produce the product. In countries that are highly industrialized use of capital goods like computers, machinery etc. In countries which are lesser developed the production is normally got through physical labor. This question mainly deals with from whom the goods are being produced. This is mainly who will receive the produced products. In a country as developed as the United States, it depends a lot on the income of the people and the prices of goods and services. While talking of economic stability the one variable which always catches attention is Unemployment. After which the prices levels is the next topic of interest. The levels of unemployment and the economic stability of a country are directly related. With the decreasing levels of employment the levels the economy of the country will also be affected. Hence to maintain the economic stability of a country it is essential to keep the levels of employment stable, or increasing however no reduction should be permitted. Also the price levels for goods and services directly affect the countries economy and thus need to be kept at constant levels. Countries which have prices of goods increasing drastically signify inflation within the country (Brozen, 1958). Thus to maintain the economic

Invisible Hand and Market Equilibrium Article Example | Topics and Well Written Essays - 500 words - 1

Invisible Hand and Market Equilibrium - Article Example The reason why some long-run average cost curves are steeper on the downside is due to economies of scale. Larger firms try to maximize production output, so the curve would be more positive and steeper than normal. The average fixed cost curve would fall as a larger firm could produce more output. Overall, this would reduce the average fixed cost per unit. The reason why some long-run average cost curves are steeper on the downside is due to economies of scale. Larger firms try to maximize production output, so the curve would be more positive and steeper than normal. The average fixed cost curve would fall as a larger firm could produce more output. Overall, this would reduce the average fixed cost per unit. 5. Explain the relationship between average fixed cost and marginal cost. Marginal cost is the cost to produce one more item, while the average fixed cost is the total cost divided by total production. These two are linked because marginal cost decreases as the average fixed cost also decrease. This is because fixed cost remains the same no matter the production output, so producing more units reduces the average fixed cost overall. Marginal cost also decreases because while the variable cost would go up, the total fixed and variable cost would be divided by more units, thus reducing marginal cost.  Ã‚   6. Explain why a firm's shut-down decision does not incorporate the fixed costs of the production facility. A firm usually chooses to shut down when revenues do not cover the variable costs associated with production. Fixed costs are not considered because they have to be paid regardless of whether the firm is producing anything or not. Just because a firm chooses to shut down does not mean that they will go out of business; they are just temporarily suspending production. If and when the firm decides to resume production, all of the fixed costs will carry on as normal. Because the marginal cost increases, some industries have upward-sloping long-run supply curves even they do not experience diminishing marginal returns. The law of diminishing marginal returns says that for each new worker that is introduced to the workplace, their overall output will be less than the employees already working there. Because a firm can only produce so much, if there are too many workers then this decreases the average output of each worker. Due to economies of scale, some firms that are monopolies can incr ease the supply of labor and will lessen total output in the long term. As a result, the supply curve slopes upward.