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Five Main Economic Terms You Should Know
Regardless of your industry or field, economics plays a large portion in our lives. It is the reason and strategy of the decisions we make in our lives each and everyday. Because of that reason, it is imperative that you have a basic understanding of some of the big economical terms used all throughout the world. Below, you will find five basic economic concepts that everyone should understand. By knowing them, you will be able to optimize your decision-making skills in every aspect of the day.
Supply and Demand
Supply and demand is the amount of commodity, product, or service that is available and desired for buyers and sellers within a particular market. Depending on the amount available and the demand ask, the overall regulation price of a product can fluctuate throughout time. Take for example the iPhone from Apple. Because of its high demands, the price for a particular phone or package will be at a constant high. To go beyond the scope of the product, we also need to encapsulate the overall cause and effect relationship supply and demand can have on a market. Continuing with the example of the iPhone, the materials and products needed to make the phone itself can also increase simply because of the demand. By understanding this relationship, you will be able to conceptualize the impact that products, prices, and demands can with each other.
Gross Domestic Product (GDP)
The gross domestic product, commonly referred to as the GDP, is the broadest quantitative measure of a nation’s total economic activity. More specifically, the GDP represents the monetary value of all goods and services produced within a nation’s geographic border over a specified period of time, usually annually. This number is one of the primary indicators used to gauge the health of the country’s economy. To have a quantitative number on the total dollar value of all goods and service produces gives business and political leaders the necessary ideas and strategies of what they can do to improve or change the economy for the better.
Cost-benefit analysis encompasses the cornerstone of our rational expectations and logistical decisions. By definition, it is a systematic approach to estimate the strengths and weaknesses of alternative options that can satisfy transactions, activities, or functional requirements of a business. In simplistic terms, it is the idea of finding the most beneficial situation that can benefit an individual with the least amount of cost. Take for example you are running a business and you need to produce one hundred million products. If you can produce that same amount in the same quality for a cheaper price, wouldn’t it make sense to go for the cheaper option? This type of sound thinking is something entrepreneurs and business executives utilize in their everyday life within the private sector.
Inflation by definition is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Take for example if the inflation rate is 5%. If a candy bar cost $1.00 in a given year, the cost will be $1.05 next year. This means that as goods and services require more money to purchase thus impacting the value of the money, which will decrease.
Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. Think of this within the gas and energy sector where we are dealing some of the world’s most limited resources. With such limits, this of course impacts the overall price. Go back to the idea of supply and demand and how much effect it can have on the price of goods.