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What Is The Most Important Economics Concept?

December 1st, 2015 Admin Assignment help
What Is The Most Important Economics Concept?

Economics is a subject that deals with human behavior in the context of various social happenings. Consumption of goods and production of goods in the market proves how people behave in matters of supply and demand of goods and how it affects the market.

What is the most important Economics concept?

Scarcity

When we go deep into the Economics concept, we understand that scarcity plays a major role in supporting other concepts like supply and demand. Production of goods occurs on the basis of the demands of the consumers. The sources of production are limited but human wants are unlimited. When people demand a particular product out of a raw material, producers produces maximum quantity for the sale of the same. When the quantity increases, the prices go down and the producers turn to some other product of the same raw material for making money. This is what the trend in the market is.

Read Also: 5 Economic Concepts Consumers Need To Know

For example, producers can make bread, beer from wheat or it can be used as cereal. Suppose people want more beer than bread from wheat, producers turn to make more beer than bread and thus sell the wheat product beer in the market for higher price. Thus wheat, the raw material is utilized as per the demand of the buyers.

Any market system is governed by the principles of supply and demand.

What do you mean by supply and demand?

The market system is ruled by demand and supply of goods. If people demand a particular good, it is produced in maximum quantity for supply. Take the example of beer. Beer is produced out of wheat and when beer is much in demand, its production increases. As a matter of course, its quantity in the market increases as people start buying beer at a great speed. This leads to an increase in the price of beer and in course of time, people are unable to meet the cost and turn to some other product, say, bread made of wheat flour. Thus, the price of beer comes down at a great speed with its supply going down and producers turning more to wheat flour for making bread.

Now, you can understand that supply of a good is in ratio with the demand for it. The scale of price for the good moves accordingly. This scenario also accounts for the fact that the hit product of one year is not the same in the ensuing year, since the supply of a product is a changing phenomenon as per the demand of the buyers.

The Law of Demand

The Law of Demand states that the higher the price of a good goes, the lesser people will demand it. It is because when the price of a good goes up, the opportunity cost of buying that good also becomes high. People will naturally avoid buying a product that forces them to forego the purchase of a product which they value more. So, we have a downward slope in the curve of the Law of Demand.

The Law of Supply

Like the Law of Demand, the Law of Supply shows the quantities of goods sold at a certain price. In the Law of Supply, we have an upward curve. The upward curve indicates that as the price goes higher, the quantity sold also goes higher. Producers supply more because selling more quantity at a higher price increases their revenue.

Thus, it can be understood that scarcity of a product is the underlying factor in the market system. The demand and supply of the products cause rise and fall in the prices in the market system. It is based upon psycho-social behavior of people and the natural consequences in their demands and purchase of goods. Economic agents like households, companies, central banks and governments have their role to play in this scenario.

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