Key Concepts in Economics

The article that has been chosen for this case is one that talks about several economic concepts including competition, demand and supply, costs and benefits and finally scarcity. Competition basically refers to the act of trying to get what the second person is also trying to get at the same time. Two individuals who are in competition would therefore try to get control of a single thing within the same time. In the world of economics, competition takes place within various forms of markets where there are plenty of willing buyers as well as willing sellers. The sellers therefore compete in order to win the buyers to purchase their products. On the other hand, the buyers also create competition amongst themselves so that they get the best offers from the sellers or the suppliers (Beattie, 2010). Once the two parties come to a common ground, they seal their contract by exchanging the property rights. The seller gives the good or service to the buyer while on the other hand, the buyer pays out money for the good or service that is rendered. Normally the interaction that takes place between the two is based on a mutual and voluntary interest.

For the keen sellers, they always know that the buyers prefer getting their goods at the lowest price possible so the sellers tend to reduce their prices so that they attract the buyers. These buyers also out-compete one another through the offers that they make to the sellers. Such competition between the buyers varies with localities and lifestyles. Buyers from Porsche areas normally buy their goods at very exorbitant prices while those from low class societies purchase at very low prices.  The sellers in the low class societies may never be 100 percent happy with the prices offered by their buyers, however, they remain better off by selling at such prices. On the other hand, the buyers from the high class area may also not agree with the prices offered to them but at the end of the day they feel better off.  When the prices of the goods exceed the cost, then the sellers make profits and that may motivate them to supply more of their products. On the other hand, a loss may signify the supplier to stop the operation or change the tactics that they are using.

The concept of costs and benefits covers a wide area of economics that primarily deals with the rationale of the buyers and sellers in a given market. For instance the buyers would be willing to purchase as product that creates maximum benefits to them. The purchase of such a product is also determined by the price tag of the product. If a consumer feels that a certain product maximizes their utility but the price tag is too high for them, then they do not purchase that product (Beattie, 2010). On the other hand if the consumers feel that the product is what will maximize their utility, and the price offered is affordable to them then they purchase the product. The consumers’ therefore purchase the products based on the costs of the products and the benefits that they are able to derive from such products.

The concept of price inflation can be applied in both cases in order to come up with the most reasonable conclusion. Inflation basically means an overall increase in prices of certain goods and services within a given economy. The prices of food are what are used in most cases to measure the rate of inflation in a given economy. If for instance the prices of basic commodities such food increases, then the suppliers might end up losing on their business because they will lack customers for whom to sell their goods to (Oner, 2010). The level of demand for goods will therefore decrease significantly. A reduction in demand will force the sellers to lower their prices so that they meet the demands of the customers. Inflation also means that the value of the currency goes down to an extent that the sellers may find it difficult importing goods from other countries. Inflation therefore creates several negative effects in the economy because a country may as well have to reduce its trading with other countries because the imports will be quite expensive (Axel, 1977). Such a country therefore loses out on the possibilities of earning enough foreign exchange from trading activities. To some extent, inflation will most likely reduce competition in the economy because very few traders would be willing to operate their businesses at such high costs. The central bank of the countries will also take measures to reduce the exploitation of the customers by financial institutions. For instance, a central bank may decide to increase the interest rates so that very few banks would be able to borrow money at such high rates. Such a move will in the long run acts as a solution to reduce inflation.

Conclusion

In conclusion, I agree with the article that the demand and supply in a free market is what determines the prices of commodities.  The consumers on the other hand will always buy goods that give them maximum utility. Inflation might however, deter the buyers from achieving that utility because of the high prices of commodities. The only solution to their problems might be through the intervention of the central bank that will be responsible for reducing inflation through the deflationary methods.

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