Economic Models Essay Example | Topics and Well Written Essays - 1250 words

Economic Models - Essay standardThe aggregate supplement and pauperism model is dictated by the standard of the models in the grocery. This captures the level of interaction between the purchaseer and the seller in both the long and short-term model. In the economy, there is a great relationship between the demand and the supply in the foodstuff. The fluctuation of one greatly affects the vestibular sense of the other. For instance, it is traditionally known that whenever the level of demand is high school, there would be an automatic increase in outlay to contain the equilibrium in the market (Cohn 2007). The case is vice versa when there is low demand. The demand of commodities in the market is low, and then the prices would be lower to attract more buyers. The AS/AD model explains this phenomenal to an understandable degree of agreement between the market dynamics. Demand, in o5ther economic terms is explained as the amount of money of goods a population is voluntary t o purchase in an economy at a particular price. On the other hand, supply is the amount a market can come toer to its quite a little. The jurisprudence of the demand in a market dictates that, the higher the price, the lower the demand of goods and services in a specific market. The opportunity cost of buying the goods goes higher because people would have other preferences in their decision. It is most apparent that people would look for other alternative means when the prices in the market are not favorable. The law of supply also has a great determination in the market. This law dictates that, when the prices are high, there are high supplies in the market. This is because suppliers seek the opportunity to make more profit when the prices are high. The Aggregate supply and demand graph When the supply and the level of end product are lower than the natural level, then the economy is entrap to suffer. This would mean that the level of gross domestic product of a country is l ow. This would mean that the giving medication would not be in a position of raising enough capital to fund its endeavors. When the level of production goes below the natural levels, the rate of unemployment would also rise. A number of people would be laid off because the government would not be in a position of maintaining. The impact of reduced GDP would raise pose many challenges in the economy. Peoples welfare would not be adequately looked into and the government would neglect their wellbeing. Prices of goods are rally to increase in such a situation. The prices would take the effect of the law of demand, but this would further pose challenge to the economy of the state. When the supply is low, people are not willing to pay more for the goods, and services would further make suppliers and investors hard quantify in supplying the economy. This is a major setback. In a situation where people are not willing to supply the market due to poor prices and at the same time, people do not have resource to buy the products in the market. The situation should not be like this in any economy. The adjustment process in the economy It is a natural phenomenon that people and situations would always resist change but rather make out to be comfortable with the normal. However, not every market is marked with an absolute degree of permanency. A time comes when things have to change. Things have to be done in a new way to enable the market of the economy to take care of the ever-increasing value and demands of humanity. In every days market, prices are bound to change the quality and quantities in the market fluctuate. The first cause of the market adjustment is the determinant. The determinant of a market adjustment