ECONOMIC PRINCIPLE AND MARKET STRUCTURES
Running Head: ECONOMIC PRINCIPLE AND MARKET STRUCTURES
Economic Principle and Market Structures
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Economic Principle and Market Structures
Different governments and states have varying economic policies that dictate the market structures and business environments. These policies are aimed at providing goods and services to the citizens while achieving fiscal benefits to the government. Quality and effective production procedures will enhance customer satisfaction while maintaining steady profit margins.
Economic Principles
Different economies have similar economic principles that dictate the production and consumption patterns in the markets. People face trade-offs when making decisions on how to consume the products in the markets. The consumers have to drop the available option and choose the best out of the many as a result of the scarce resources and limited incomes. Each day people have to make decisions on how much to spend and how satisfaction is derived from the decision. Opportunity cost in the decision-making process should come into practice in normal economic markets.
It is expected that rational people will make decisions at the margin by making a perfect decision to achieve their goals. Consumers are expected to make purchases on goods and services that will derive maximum satisfaction regarding the limited incomes and the set prices. Economists believe that rational people will make decisions based on the comparisons between marginal cost and the marginal benefits from these choices.
Consumers are supposed to respond to incentives in the market places. Incentives are given to induce the consumption patterns of the consumers. Incentives may have positive or negative intentions. Increasing taxes on commodities may lead to reduced consumption while offering more pay for workers who show hard work may trigger hard-working practices in a firm.
Economists expect that trade should make the participants better off. When people are involved in a trading activity, both parties are expected to benefit from the interactions. Households benefit from the goods and services from the firms while the firms gain profits from the consumption by the households. Different households and firms will depend on each other because no one has a monopoly of all products and services. People need each other at some point in life.
Markets offer a viable option for organizing economic activities. Market economies work by allocating resources through some predetermined decisions of various organizations and households as they conduct business in the market place. Free markets enhance the determination of market prices for commodities depending on the customer satisfaction demands and the cost of production of the products.
Government policies and intervention at times work to improve market outcomes. Uncontrolled markets will cause market failure because the resources are not allocated efficiently and equitably. Government involvement stabilizes the running of market activities by ensuring efficiency and equity. Market rewards market participants for their ability to produce goods and services that will satisfy the needs of others.
The living standards of a country are determined by its ability to satisfy its market demands in terms of goods and services. Different countries have different production levels and thus the difference in the gap and the level of the living standards. Increasing productivity in the country through education, use of technology, and allocation of efficient production resources and tools will help boost the living standards of the nation.
The prices of goods and services in a market rise when the government prints more money. Too much paper money in the economy will lead to inflation due to the decreased value of the money in the world markets. The currency gets into steady circulation level but becomes valueless as everybody can afford it. Money should be scarce for it to remain competitive.
Societies encounter short-run trade-offs between unemployment and inflation. Unemployment and increase prices for commodities results from a short-run due to monetary injection. Increase in the amount of money in the market will cause an increase in the spending patterns which trigger firms to increase the market prices. Too much spending leads to an increase in demand. The quality of the commodities in the market decreases due to increased demand
Market Structures
There four different market structures in most economies in the world which include perfect competition, monopoly, oligopoly, and monopolistic competition. Monopoly refers to market formation in which a single entrepreneur controls the entire market. A perfect market occurs when many small businesses compete against each other over similar goods and services. It is the most common structure in the free market. Monopolistic competition happens when many small business organizations compete in a market with differentiated goods. Oligopoly market structure describes a market in which a small number of businesses compete with each other.
Role of Government in the oil and Gas market
The United State is among the world’s largest oil reserves. However, the country imports most of its oil and natural from other countries to satisfy its demands. The Unite State is the largest consumer of natural gas and oil in the world. The industry is government regulated due to its nature in the economic impact it has on the US economy. The oil industry affects most of the other production industries in the country due to the demand of the product in the production process.
The government controls the economy through provision of legal and social framework in the market, it redistributes income, stabilizes the economy through economic policies, correct externalities affecting business activities, avail public resources and service as well as to maintain competition in the market.
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