PRINCIPLES OF ECONOMICS

PRINCIPLESOF ECONOMICS

Principlesof Economics

Economicprinciples guide market players in pricing of their goods andservices. Various dynamics have to be considered to ensure that themarket equilibrium price is achieved. As a result of this, the marketis able to clear ensuring that incidences of either excess demand orsupply are eliminated. Moreover, the trader sought to be aware of theforces of demand and supply affecting a specific good or service toensure that the right pricing is done to ensure that the marketclears. These acts as guidance to the sellers while making businessdecisions to ensure that they make decisions that are cost effectiveand lead to profiteering as well. Since failure to factor in theforce of demand and supply while making decisions may end up costingthe business heavy losses. In business the market players ought to bewell versed with the associated shifts of demand and supply curves aswell as the movements along the curves to ensure that goods arerightly priced and the market clears (Krugman,2005).

Furthermore,the market players ought to understand about the goods perceivedconsumers value. To this effect the marketers can be able to takeadvantage of the consumer’s surplus by charging prices that arecloser to the maximum price the consumer is willing to pay. As aresult, the market player can be able to increase their profits witha greater margin. Additionally, the producers could aim at costcutting measures that would enable charging of lower prices to thecustomers thus increasing sales volumes (Adil,2006).To this effect the chances of the firm growing its market share aregreatly enhanced and to a greater extents its profits. Furthermore,as the author states the elasticity of a good to prices and income aswell must be considered to ensure that the market is approached withcaution to avoid incurring losses(Krugman, 2005).The market players should understand the effects of actions taken byfellow players on them for example if they raise their prices wouldthe consumers shift their sales to others traders. To this effect theauthor of the articles points out that in perfect completion marketwhere all seller and buyers have perfect information it would betragic for a firm raise its prices above the rest of the playerssince it would end up diluting its market share. Additionally, theeffect of taxes either in form of increases or reductions ought to beconsidered with reference to elasticity to ensure that the salesvolumes are not affected (Samuelson,2010).

Themarket equilibrium price is determined by the interaction between theforces of demand and supply. As it illustrated in the article thedemand of a good depends on various factors among them being its ownprice. Normal goods demand falls when their prices increase on theother hand their demand rise when their prices fall. However, for thenecessity goods in wake of expected shortages in spite of theirprices rising their demand rises as the consumers prepare for theanticipate shortages in supply (Adil,2006).Asa result the article encourages the market players to consider thenature of their goods while intending to apply any price changes mayaffect demand. Additionally, the other factors affecting demand suchas seasonal changes should also be considered to ensure thatappropriate inventory is stocked .This reduces the problem ofunmoving stock that reduces businesses liquidity.

Moreover,the factors affecting supply of the commodity dealt with by a firmshould be identified. This acts to ensure that the firm is able tomove along with the developments in the industry. An ideal example isto what extent raw materials prices rise in case of high demand. Inaddition to that the effect of technological changes to productionprocess is considered thus helping identify if the goods dealt withmay become obsolete due to rapid technological changes. The policymakers in businesses are as a result able to make appropriate preemptive actions to prevent the collapse of the business (Adil,2006).Thegovernment policy in relation to the production of the good orservices has also to be put into action to ensure that the businessremains intra vires (Krugman,2005).Any price floors or ceiling should be taken into account that thebusiness remains in operation without much challenges. In wake ofprice ceiling the firm could come up with ways of increasinginventory turnover to cover for the lower prices charged.

Finally,the author of the article has talked about the issue of elasticitythat has to be looked at three angles. To begin with the goods changein demand as a result of own price movements must be taken intoaccount. As a result the policy makers in the business are able to set prices that equate to the market equilibrium. This ensures thebusiness does not either overcharge or undercharge its customers.Secondly, the policy makers have to pay attention to the crosselasticity of the good to the changes in prices of related good(Adil, 2006).&nbsp.This will ensure that the good competes comparatively well to itssubstitutes in the market hence avoid losing its market share. To capit all, the goods elasticity in relation to income must also beconsidered to ensure that the prices are fixed well in accordancewith the levels of elasticity(Samuelson, 2010).&nbsp.As a product of that the prices charged in the short run as well aslong run are all in tandem with the market equilibrium.

Tosummarize, I would like to fully agree with the author of the articleon the issues highlighted in it. As factors affecting demand andsupply are well outlined in accordance with the principles ofeconomics taught in class work. The various factors are clearlyoutlined indicating the extent that the author has gone to make thearticle fathomable to the readers.

References

Adil,J. R. (2006).&nbspSupplyand demand.Mankato, Minn: Capstone Press

Krugman,P. R., &amp Wells, R. (2005).&nbspMicroeconomics.New York, NY: Worth.

Samuelson,P. A., &amp Nordhaus, W. D. (2010).&nbspEconomics.New Delhi: Tata McGraw Hill.