Basic Economics #3==>SOCIETY'S TECHNOLOGICAL POSSIBILITIES

SOCIETY'S TECHNOLOGICAL POSSIBILITIES

"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed."

-President Dwight D. Eisenhower

While I was wondering what possibilities I possess, I suddenly decided to ponder upon our Society's technological possibilities. 

Society has a wide range of physical inputs available but what to do of them? Economists all around the world spend their lives creating formulae to manage "society" and its produce!

They ponder upon how much land will go into growing wheat? Or into housing the population? How many factories will produce computers? How many will make pizzas? 

Being regularly faced with the undeniable fact that goods are scarce, relative to wants, an economy must decide how to cope with these limited resources that are available. It must choose among different goods (the what), select from different techniques of production (the how), and decide in the end who will consume the goods (the for whom).

INPUTS AND OUTPUTS

To answer the above three questions, every society must make choices about its economy's inputs and outputs. 

Well, wondering what the term Inputs and outputs actually mean?

Inputs are nothing but commodities or services that are used to produce goods and services.

Wood is an input for the manufacture of furniture. 

VEgetables, flour, sauces are all inputs for cooking lasagne.

Anything that is used to create/produce/manufacture any other product is called an "input" in economics.

And,  an economy uses its existing technology to combine inputs to produce outputs. Outputs are the various useful goods or services that result from the production process and

are either consumed or employed in further production. 

Consider the "production" of pizza. (i usually get my knowledge from the great economist William D. Nordhaus, hence I'll use one of his examples!)

We say that the eggs, flour, heat, pizza oven, and chef's skilled labour are the inputs. Then, the tasty pizza is the output. In education, the inputs are the time given by our teachers, the meticulous students' concentration, the laboratories and classrooms, the textbooks, and so on, while the outputs are informed, productive, and well-paid citizens of our nation. 

Another term for inputs that we use in economics is "factors of production". 
These can be classified into three broad categories:

Land, Labour, and Capital.

1. Land or, more generally, natural resources represents the gift of nature to our societies. It consists of the land used for farming or for underpinning houses, factories, and roads; the energy resources that fuel our cars and heat our homes; and the nonenergy resources like copper and iron ore and sand. In today's congested world, we must broaden the scope of natural resources to include our environmental resources, such as clean air and drinkable water. 
   
2. Labour consists of the human time spent in production-working in automobile factories, writing software, teaching school, or baking pizzas. Thousands of occupations and tasks, at all skill levels, are performed by labour. It is at once no the most familiar and the most crucial input for an advanced industrial economy.
   
3. Capital resources form the durable goods of an economy, produced to produce yet other goods. Capital goods include machines, roads, computers, software, trucks, steel mills, automobiles, washing machines, and buildings. As we will see later, the accumulation of specialized capital goods is essential to the task of economic development.
   

With given resources and technology, the production choices between two goods such as butter and guns can be summarized in the production-possibility frontier (PPF).

The PPF shows how the production of one good (such as guns) is traded off against the production of another good (such as butter). In a world of scarcity, choosing one thing means giving up something else. The value of the good or service forgone is its opportunity cost.
Productive efficiency occurs when the production of one good cannot be increased without curtailing production of another good. This is illustrated by the PPF.

When an economy is on its PPF, it can produce more of one good only by producing less of another good.

Production-possibility frontiers illustrate many basic economic processes: how economic growth pushes out the frontier, how a nation chooses relatively less food and other necessities as it develops, how a country chooses between private goods and public goods, and how societies choose between consumption goods and
capital goods that enhance future consumption.

Societies are Sometimes inside their production possibility frontier because of macroeconomic business cycles or microeconomic market failures. When credit conditions are tight or spending suddenly declines, a society moves inside its PPF in recessions; this occurs
because of macroeconomic rigidities, not because of technological forgetting
A society can also be inside its PPF if markets fail because prices do not reflect social priorities, such as with environmental degradation from air and water pollution

Happy Writing!

BASIC ECONOMY UNDERSTANDING FOR BEGINNERS #2==>DEMAND AND SUPPLY

BASIC ECONOMY UNDERSTANDING FOR BEGINNERS #2

"Teach a parrot the terms "demand" and "supply" and you've got an economist. "

-Thomas Carlyle

As the quote suggests, today, I talk about the most basic phenomena that regulate an economy i.e Demand and Supply.

Let's begin with Demand. Demand is all about "what" one wishes to have/purchase, "how" much quantity he requires and "when" does he require it. When I say 'he', I mean a consumer i.e any person who buys any good from the market. 

Supply, on the other hand, is all about "what" one wishes to produce, "how" much quantity he requires and "when" he wishes to produce it. It's all similar yet absolutely opposite. When I say 'he' here, I mean a producer i.e any firm/factory/market that manufactures/sells goods. 

Graph explaining the inverse relationship between the commodities

Without focusing on the man, let us look at these lines. Any person with a basic knowledge of a graph would instantly know these lines are in an inverse relationship status. The inverse relationship arises when the increase in one commodity leads to a decrease in the other. 

This is exactly what happens with our supply and demand or prices and demand. 

Consider this example. A firm produces 100 ballpoint pens and 100 gel pens. There are 100 consumers for ballpoint pens, and 100 for gel pens. Now, suddenly, the firm decides to manufacture 150 ballpoint pens and 50 gel pens. In economical terms, The supply of ballpoint pen increases, and the supply of gel pens decreases. 

Can you guess what happens to the demand for these pens?

More people now want gel pens (because it is human nature! you crave for what you do not have) So, now there are 100 (or maybe more) people who want gel pens but the producer has only 50 of them! How will he distribute them?

One way is to conduct a lucky draw!

But, that's not the case every time. The producer will think rationally and "economically". He will raise the price of the pen and suddenly only 60 people would be interested in gel pens with heightened prices. This will continue unless the supply meets the demand. That situation when arises is called EQUILIBRIUM. 

Equilibrium between demand and supply

There needs to be a balance between Demand and Supply for the Economy to function. 

DEMAND CURVE

The quantity demanded for any commodity does not always suit the wants or needs of the buyer/consumer. It depends on a number of various other factors like 

• price of the commodity
• price of other substitute commodities
• income level of consumer
• preferences
• seasonal effects (you will be surprised to know that the sales of maggie and tea leaves increase gigantically during the rainy season!)

The price-quantity are plotted on a curve that is called the demand curve

A demand curve comprises of the price which is represented on the vertical axis (or Y-axis) and quantity which is represented on the horizontal axis (or X-axis). 

One important characteristic of a demand curve is that it is always downward sloping. This means a consumer is more willing to buy products at a lower price level.

Demand curve

SUPPLY CURVE

The quantity of a commodity that any firm manufactures and the supplies to the market depends not only on the price obtainable for the commodity but on potentially many other factors. Some of these are 

•  prices of substitute products,
•  the production technology, 
•  availability and cost of labour and 
• other factors of production.

When we analyse "supply", we analyse the relationship between various prices and the quantity offered by producers at each price. All this, while holding all the factors that can influence price, constant. 

A supply curve comprises of the price which is represented on the vertical axis (or Y-axis) and quantity which is represented on the horizontal axis (or X-axis). One important characteristic of a supply curve is that it is always upward sloping. This means a producer is more willing to sell in the market with higher prices. 

Supply curve

Its lunchtime now, so I'll write more later. Please read and stay updated.

Happy Writing!

Basic economy understanding for beginners #1

ECONOMY

“It’s a recession when your neighbour loses his job; it’s a depression when you lose your own.”

― Harry S. Truman

When I decided to write on this topic...i questioned myself, 

"What is the economy?"

Well, to begin with, in layman terms, any activity related to production, consumption, and trade of goods and services in an area is called "economy". An economy of any country is governed by a few characteristics. These are culture, laws, history, and geography, among other factors, and it evolves due to necessity.

When I understood what is the economy, the next basic question that arises is 

"How does the economy of a country work?"

To decide the working of an Economy in a country, three basic principles come into my mind. 

 (1) A country's standard of living (that defines the economic conditions of a country) depends on its ability to produce goods and services; 

(2)  When the government prints too much money, the prices of goods in a country reach sky-rocketing price (or rise) [this phenomenon is also called inflation]

 and 

(3) Our society occasionally faces a short-run tradeoff between inflation and unemployment rate due to the extremely high population and low availability of jobs.

Now we know "What" is economy, "how" does the economy work in a country? but "why" economy?

"Why is the economy necessary for a country?"

Well, to be blunt and basic, Economy helps us to thrive and survive. if you wonder How!?

Here is my view:

I wouldn't say if Economy is important, or unimportant. I would say the ECONOMY IS!

From times immemorial, we have been practising economy without even knowing we did!

production of goods, exchange of goods (barter system), selling of goods...everything that is in human nature is the ECONOMY.

Moreover, you will be surprised to know that the Economy doesn't just concern itself with money! A system where no money is involved is part of the economy too. A simple example that I already discussed is the Barter system which is the economy!

Good economic conditions are probably the most important means of human survival, stability and peace among different (tribes in the past) and nations in the present!

-Rashi Mohan