Paper Example on Economic Dynamics: From Demand and Supply to Global Interconnections

Question 1: Demand and Supply

The law of demand and supply helps to understand the interaction between suppliers, buyers, and resources in a particular market. While demand is the number of goods and services customers are willing to buy at a given price, supply is the number of products and services available in the market at a given time that would meet market demand (Mankiw, 2014). As the demand for commodities increases, prices increase, motivating suppliers to increase the supply to meet the demand. Conversely, a decrease in demand lowers the equilibrium price, as well as the quantity supplied. Therefore, the equilibrium shifts outwards, indicating an increase in demand, and shrinks inwards, illustrating a decrease in demand.

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Question 2: GDP and GDP per Person

The gross domestic product (GDP) is the total market value of finished products and services an economy produces over a given financial year. The gross domestic product is used as a balanced scorecard to determine the economic status of a country. Elements that constitute GDP include public consumption, investments, expansion of the private sector, and balance of trade. The economy of a country improves when a country exports more than it imports (Mankiw, 2014). In this regard, domestic investments significantly contribute to economic growth in the form of gross domestic product. Important to note is that economists use monetary value to measure GDP. Consequently, inflation plays a significant role in influencing the economic performance of a country. A surge in inflation increases the prices of products and services, but this does not necessarily mean that the country increases its production, but it is a result of inflation.

The United States is one of the strongest economies globally. In 2019, the US GDP per capita was $65,281, representing a 3.63% increase from 2018 (Macrotrends, 2020). In 2018, the GDP per capita in the US was $62,997, a 5.07% increase from 2017 when the country recorded a gross domestic product per capita of $59,958 (Macrotrends, 2020). Notably, the United States continues to record growth in economic performance.

Question 3: Cases Analysis

The automobile industry in the United States plays a significant role in its economic development. In 012, the industry’s sales increased to 1.19 vehicles monthly, representing a 12.8% increase from the previous period (Case study). Among the players in the industry include Ford, Honda, Chrysler, and Nissan. One of the factors influencing the growth of the industry in the United States is a favorable economic exchange. The value of the dollar is higher than many currencies globally and this improved terms of trade. The second factor is the availability of affordable labor during the time. After the economic recession that hit the United States and other economies, automobile companies enjoyed affordable labor that reduced the cost of production; thus increasing the production capacity. However, competition intensified in the industry since Japanese automobiles began being manufactured in the US because of the strong yen and export internationally.

The US automobile producers, who had their competitiveness, regained their profitability after the recession through government-sponsored incentives. General Motors and Chrysler invested in the engineering and design of their vehicles to meet global demands and offer value to the customers. Companies, such as Ford realized that Asian-loyal customers began looking to the United States because of the quality and design of vehicles (Case study). With the economic growth in China, many companies eyed the market, intending to establish manufacturing plants so that they increase their production and access the market. For example, Ford announced in 2012 that it would establish a manufacturing plant in Eastern China. In this regard, the primary issue emerging from the case study is that competition in the automobile industry in the US and internationally increases annually. The United States government should establish protective policies to protect domestic automobiles, like developing government-sponsored incentives to ensure the companies remain competitive.

Question 4: Economic expressions

Favorable foreign exchange: It determines the strength and fate of one country to another (Arestis, 2011). In this context, the Japanese Yen had a stronger value than the US dollar and that is why Japanese automobiles began manufacturing cars in the US and exported to the international market.

Managerial decisions: It means that economists must make informed decisions to improve their competitiveness (Arestis, 2011). For example, the automobile should consider establishing manufacturing plants in economies with low costs of production so that they invest the resources in research and development.

Economic growth: It means an increase in the gross domestic product of a country over a given period (Arestis, 2011).

The supply: It means the supply chain process involved in delivering inputs to a production site with required specifications and at the right time (Arestis, 2011).

Economic crisis: It is upsetting an economy that influences business operations. It includes a crash in the stock market, unemployment, and high inflation (Arestis, 2011). They affect economic activities by disrupting a connection between different sectors.

Question 5: Explanation

Economics is about the relationship between two or more stakeholders. In a two-sector economy, firms produce goods and services for households while households provide factors of production, including labor, land, capital, and entrepreneurial skills. Additionally, there must be a flow of financial resources to sustain economic growth (Economics Mafia, 2014). For example, households earn wages and salaries while they pay firms for goods and services they buy. Additionally, economics is an interconnection of various sectors. Firms and households save finances they do not require at the moment. Notably, they do not keep their savings in their homes or offices but they deposit in banks. Conversely, banks lend to individuals and firms as forms of investment. The government collects taxes from firms and households and uses them to provide essential services to its citizens (Economics Mafia, 2014). From the global perspective, governments and firms export surplus products and services and import commodities they do not manufacture. In this regard, macroeconomics explains the relationship between various sectors of an economy, including the interdependency of various sectors. Internationally, microeconomics promotes a commercial relationship between two or more countries through trade.

References

Arestis, P. (2011). Microeconomics, macroeconomics, and economics policy. Palgrave Macmillan. https://link.springer.com/content/pdf/10.1057/9780230313750.pdf

Cases study. “Micro and Macroeconomic Influences on the Global Automobile Industry”

Economics Mafia. (2014, Nov 21). Circular Flow of Income. How the different components of an economy interact. YouTube. https://www.youtube.com/watch?v=WlgMgppUx_Y&feature=youtu.be

Macrotrends. (2020). US GDP per capita 1960-2020. https://www.macrotrends.net/countries/USA/united-states/gdp-per-capita

Mankiw, G. (2014). Brief principles of macroeconomics. Cengage Learning. https://books.google.co.ke/books?id=3ubKAgAAQBAJ&printsec=frontcover&dq=principles+of+Macroeconomics&hl=en&sa=X&ved=2ahUKEwjKy-TU4rjtAhW76uAKHdbaCD4Q6AEwCXoECAEQAg#v=onepage&q=principles%20of%20Macroeconomics&f=false