The economic system is done on two levels: microeconomics and macroeconomics. Microeconomics is the study of economics on a small scale, such as the individual behaviour in the economy markets (Davis, 2009). For example, microeconomics study will analyse how individuals respond to the incentives, the expenses of a firm or the household income.
On the other hand, macroeconomics study of economics on a large scale usually the national economy (Investopedia, 2003). It analyse the national goals of the economy, such as maintaining full employment, stabilizing the economy or pursuing the economic growth.
A market, in an economic view refers to which buyers and sellers negotiate the exchange of specific goods. Markets can be distinguished into product
…show more content…
The Circular-Flow Model. Digital image. The Circular-Flow Model. N.p., n.d. Web. Retrieved from http://economics.about.com/od/economics-basics/ss/The-Circular-Flow-Model.htm
When the demands of the consumer for the goods/services increases, the market price will increase as consumers will compete to purchase them. This will persuade businesses that seek profit to increase the production of the goods/services. If the supply of these goods /services begins to exceed the demand, the market price falls and the production of these goods/services reduced. This will affect the profits of the manufacturers, but production will still continue even for smaller profits.
Markets function without having any fixed program or plan. Buyers and sellers act based on their personal desires, abilities and incomes. The market works efficiently without intervention which derives from the policy of “leaving things alone” which refers to “laissez-faire”.
There are 5 common economic objectives of the government: full employment, a desirable mix of economic output, high and fairly distributed incomes, price stability and economic growth (Lindeman,
…show more content…
It ensures to provide employment for them. The goal of full employment is a low rate of unemployment approximately between 4 to 5 percent.
Desirable mix of output is the goal of achieving the economy’s production possibilities. It refers to utilizing the labor of those who are willing to work to produce as many goods and services as much as