Economics - Scarcity, Opportunity Cost, and Tradeoffs - Essay Example

Name: Tutor: Subject: Date: Introduction What is Economics? Economics is a known discipline that answers the much monetary question that is encountered in our daily lives. Economics can be defined differently to suit the current situation. The study of scarcity, the analysis of decision making, and education on how to use the available resources are just but the few definitions that will be focused through when analyzing this article. Economics deeply discusses several major topics: recession, banking, and finance making the subject to be more of the stock market and money (Kahn 10). Scarcity, Opportunity Cost, and Tradeoffs Scarcity concept is a vital tool for the economists’ knowledge when analyzing a market situation. Everybody wants luxury, goof roof, best car, nice clothes, sufficient education, vocational picnics, and good food to eat. However, not everybody can accommodate these expenses due to the little monthly income. For this case, the income is the scarce resource limiting the full adherence to the human needs. In economics, scarcity theory controls the demand and supply curves, hence dictating the prices of commodities (Baumol). Due to scarcity, a person has to discard some necessities over the others. This is referred to as tradeoffs. You need a bicycle and a skateboard, but you do not have cash for both, you make a choice and buy one of them: tradeoffs. Opportunity cost theory can be explained when someone decides to forgo the four years income worth and joins a college to acquire a four years degree. A person compares two opportunities and selects the most favorable (Baumol). Production possibility frontiers (PPF) The PPF curve is used in economics to depict all the available possible highest output possibilities for several goods by varying the inputs: labor and resources among others. The curve assumes the efficient utilization of all the inputs. For instance, for the products A and B, they are efficiently produced and C if vice versa where the position X indicate inefficient production. The point Y indicates the results that cannot be achieved with the current inputs (Kahn 50). Market Demand, Supply, and Market Equilibrium The supply and demand curves depict the amount that the suppliers are willing to provide at the prevailing costs and the amount that the customers are willing to buy (McConnell). The curves may shift, and resultant effects are outlined below. The Market Equilibrium Market equilibrium occurs when the demand and supply are equaled through the price factor. The increment on the decrease of the prices by the sellers depending on the customer demands is a mechanism that ascertains market equilibrium. Below is the depiction in a supply-demand curve. (Investopedia, 2003) Analysis of the Article External Environment The article outlines the effect of the external environment to the interest rates, global activity, and the continued expansion of the gradual pace. The author endeavors to show the ways that the economy can be advanced using the available economics theories. However, the article says that the emerging market economies (EMEs) have remained uncertain for the past years. The economy of Chine regresses with evident spillovers of other EMEs that emerge from far Asia. The countries that export are analyzed to find out the need to adjust in a bid to lower the commodity prices, which will raise the demand from the consumers creating a market equilibrium as depicted in the curve above (McConnell). The exportation needs to be adjusted to help resolve the continuous slowed economic growth experienced in China and other global countries. The author identifies that the developments that were effected in 2015 to advance the EMEs, and global economies turned out to be weaker confirming the fragility of the momentum growth. However, there was a robust improvement for the third quarters that show the US economy experience a slowed nourishment for the last quarter. Economic Activity The economic activity seems to reduce in Latin America at the end of the year 2015. This is inclined to the greater recession that was experienced on Brazil that led to very low commodity prices for all the producing states. The euro area economic recovery is on its rise despite the signs of growth moderation depicted at the start of the year 2016 caused by the weakening external environment. The article indicates that the previously survey that was done shows weakening growth momentum at the start of 2016. The domestic demand is recommended to be fully supported by ECB’s policies to ensure favorable financial conditions, fiscal stance, and employment structural reforms to renovate the labor resource input into the production cycle. The lowered price of oil is expected to provide more support to real disposable household income to ensure continued corporate profitability, which boosts the investments and private consumption rate (European Central Bank 16). Fiscal Developments The deficit in the annual budget in the euro area is projected to remain stagnant over the projected horizon for the expanded fiscal policy stance and improving the cyclical policies while reducing the interest payments. In states having high uncontrolled debts levels, efforts consolidation to ensure that the debt ratio is maintained at the lower path, which increases the resilience to dire shocks. The article bases on the March 2016 ECB microeconomics projections where the euro area is predicted to hold at 2.1% of the current GDP until 2017. The author suggests that the states should endeavor to offer effective support meant to contribute to the growth of the economy depending on the medium term. The countries should be in a position to direct their policies towards stable investments and spending, while not forgetting the probable fiscal space accessible. According to the macroeconomics analysis, the public investment is expected to positivize the demand, while raising the output due to hiked public capital stock. Finally, the government needs to see to it that balance has been attained in the fiscal policy stance by not impairing the recovery endeavors but by reducing the debt levels significantly (Brown, Byron, and Carl 444). Prices and costs The article outlines the effect of increased prices, which is a factor that helps maintain a market balance. Inflation leads to an unfavorable shift in the price, which may either increase the supply or shift the demand negatively. The market-based indicators have shown a long-term inflation and have fallen for the better part of January 2016. However, the trend is predicted to pick up soon as depicted by the market participants. The deflation risk in the market remains limited despite the declined inflation as shown by the selected market indicators. The consensus economics survey measure is more resilient and depicts a stable short-term down adjustment. The result from Survey of Professional Forecasters (SPF) indicates an average point forecast for the following five years lying at 1.8%. According to the euro system staff, the microeconomic projections along the euro area for the HICP inflation were revised and the energy prices inflation is on the verge of declination (Brown, Byron, and Carl 448). Financial Developments The better part of the end year 2015 and the start of 2016, there has been characteristic fiscal market volatility. The gross decline of the oil prices at the end of 2015 has contributed to a decrease in the prices of risky financial assets. However, after a period, the decline was reversed due to the partial increase in the oil prices, which was better compared to the economic data that was solicited from the United States. This led to a significant monetary stimulus around the euro area that reduced the concerns raised by the investors. The price factor was predicted to decrease by an overall rate of 12% for the set review period: 2nd Dec 2015 up to 9th Mar 2016. In the mid-February, it had a temporal decline of 20%. The investors started to seek safer assets, as the sovereign bonds yielded the highest output with the available inputs (European Central Bank 13). Money and credits The author highlights that the monetary growth remained constant different from the loan recovery that remained stealth. The huge growth was attributed to the domestic sources that invigorate the money creation process, which is the main driver. The credit dynamics have been refurbished with the help of the lower interests rating, solid asset buying program, and ECBs continued refinancing operations. The bank’s funding has greatly reduced to where they were at historic times and had overly stabilized. This directly increases the income per capita; as a result, the market equilibrium is triggered. The country homogeneity has been neutralized, and the banks can offer favorable funding requirements and topping it up with low lending interests (European Central Bank 25). Impact of oil price declines to rely on current account surplus The euro area is the net oil importer and any decline in oil prices lead to a significant improvement in trade terms. Since price is inelastic in oil demand, any decrease in prices reflects a positive oil trade balances as well as the current account balance in the euro area. This is the same results depicted from individual euro area states. The actual effect of price decline on current accounts is normally a partial offset of the indirect impacts: higher demand for non-oil imports and stronger economic activities and lower expenses in exporting products to oil-exporting states (European Central Bank 59). 2016 macroeconomic imbalance and recommendations The process represented the fifth time establishment after 2011. The idea behind the study was to ensure there was no possible setoff of dire imbalances it the EU states, also to correct the already existing inequality. If the imbalances ae severe, the EIP is initiated under the set recommendations meant to ease the problem. The author highlights the measures that should be taken to ensure that the balance is attained and stabilized. The box is sufficient as it offers a complete procedure to ensure that macroscopic balance remains on watch. Through his process, the economists suggest that the inflation will be a thing of the past (Lane 235). Conclusions Economics has the backbone for the financial status globally. If every country can maintain its supply and demands by varying the price mechanism. The exports and imports of particular products depend solely on the demand that triggers the supply. Market equilibrium is mostly attained when the seller is willing to give out the goods at the current price and the buyer is ready to pay at current rates. The macroeconomic imbalance is lethal to the state’s financial positions. The debt recovery becomes hard, and the investors disappear. This leads to a gross depreciation of a country’s resources and economy; hence the need to be regulated. The article is a perfect match of what we learned in class. The snap of the article. References Baumol, William, and Alan Blinder. Microeconomics: Principles and Policy. Cengage Learning, 2015. Brown, Byron W., and Carl E. Lindholm. "Can web courses replace the classroom in principles of microeconomics?." The American Economic Review 92.2 (2002): 444-448. European Central Bank. “Economic Bulletin: euro system.” Journal of UE economics 2(2016): 1-114. Kahn, Alfred Edward. The economics of regulation: principles and institutions. Vol. 1. MIT Press, 1988. Lane, Philip R. "The new open economy macroeconomics: a survey.” Journal of international economics 54.2 (2001): 235-266. McConnell, Campbell R., Stanley L. Brue, and Sean Masaki Flynn. Economics: Principles, problems, and policies. No. HB171. 5 M139 1969. New York: McGraw-Hill, 1969. Read More