The Economy
Introduction:
Without the economy, you couldn't have economics. That would have made my Business Administration and Economics double major even more useless than it has proven to be (or exactly as useless).
So, what should i talk about here? Maybe it should be a surprise even to me. Bottom line, i like free market economics and free trade. Should i try to explain why? Ok, if you beg me i will. Anyone, anyone, anyone... Beuller?
How the Economy Works: My View
There is a slight problem here for me: how much should i assume the reader knows about economics (and how much do i still remember). i will probably mess up definitions or oversimplify concepts here or there, but the basics are supply and demand.
Think of supply as a store that affords you the opportunity to purchase goods. The store would like to sell more items at a higher price (so they will get more money per unit). Now there is demand - that is you buying the goods and services you want. You want to buy the good at a lower price and will probably buy a greater quantity of Good X at a lower price point.
The store knows this, so they want to find the price at which their profit will be the highest. That semi-mythical point is called the equilibrium - where the store's price and the quantity of Good X that the consumer wants at that price maximizes profits. Lower price can move more units but won't maximize profits. Higher prices will likely result in less units sold. Selling at the highest price rarely nets a store the highest profits.
Supply and Demand the Very Basics:
i should probably have an oversimplified example or even a chart (or not - had in original post MCM Part 8: Part 1). Let's say that at $0 a store will offer no units, however at $10 they will put 10 units of Item X on the shelves. However, the buyers are not willing to buy any Item X at $10. The Buyer will gladly take 10 units of Item X for free though. i'm stretching the supply side a little (a manufacturer or customer are better to use in examples typically). Let's see what that looks like as a line chart.
Disillusioned: My Conservative Manifesto (MCM): Part 8: The Economy: Part 1 (dft-disillusioned.blogspot.com) scroll to the same titled section.
Here you see what extremely basic supply and demand curves look like (or you would). The Demand curve (teal line) is downward sloping; the Supply curve is upward sloping (red line). i had classes on why they are theoretically that way, but you don't really need to know. i'm not as good with charts as i used to be in Excel (as evidenced by the non-convergence of the axes). The vertical (Y) axis is price, the horizontal (X) axis is quantity.
Basically, the point is that the store would want to sell Item X for $5 (where the curves cross). At that point the store would receive the most revenue of any combination on the curve. This is called the equilibrium point (or where it balances).
Real demand and supply curves are usually not fully known (though several points on the curve typically are). So why do they call the Supply and Demand Curves? Well, in most instances they would actually be curved (many demand/supply equations are x^2 format).
This would require a bit of a discussion about demand/supply elasticities, which i don't feel like doing). Elasticities are measures of price sensitivity (a $X increase or decrease in price results in a Y decrease in quantity demanded).
Important note: 5 is not the demand or supply in this example. 5 is the quantity demanded/supplied at the $5 price point. Supply/Demand refers to the entire curve (and there are shift conditions for both). A "quantity" demanded/supply refers to a specific point on the curve. In this simplified case the Demand equation would be something like: P = a - bQ. In this example a (non-price demand factors) is 0, the slope (b) is -1, Q is the quantity demanded at that price point. The simplified supply curve would be P = a + bQ. All terms are the similar flipping Supply and Demand. Most demand/supply curves will not have unitary elasticity (be straight lines with 45° angles)
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