PEAR ECON 1

The fundamental concepts of understanding economics are developed through the evaluation of the scarcity, value, exchange, production and comparative advantage. When understanding scarcity we learn that it is inevitable. Moreover, the concept itself creates problems that require solving. The main problem is the distribution of the goods or services. As we learn about this concept we can reflect our understanding on the supply and demand model. We also learn that scarcity is the measure of supply. For example, if there are scarce amount of stones, then the supply of stones is low. Now, if many people wanted these stones then the demand would be high. Usually, people want things that are low in supply, which increases its demand. To add, scarcity, opportunity cost and, supply and demand are highly interconnected, “Scarce resources mean there is an opportunity cost to use them.”(Eveline J. Adomait, 2012, 63) Price is another representation of opportunity cost. In terms of price, it is high, if the supply is new and the demand is high. Also, when the supply is high yet the demand is low the price is low. This reflects on the concept of scarcity, which shows how it is useful in understanding the demand and supply model. Moving on, value in the terms of economics is defined as the amount an individual is willing to pay – through time or money – in order to acquire goods or services. When understanding supply and demand models, we must acknowledge the value of goods or services. Analyzing value in terms of supply and demand, we learn that the value increases when the demand increases. For example, paintings painted by artists such as Jackson Pollock, have higher value since the demand for them has been high. These paintings are limited in supply, meaning they are scarce, and this too, leads them to being

in higher value. However, if the demand for them decreased even when the supply is low, the value of these paintings too will decrease. Next, for better understanding supply and demand models, learning the concept of exchange is vital. Now, exchange plays with opportunity costs, which is the combination of availability and values, which are subjective. Yet, first we must understand the basics of supply and demand, “When you give something up you are supplying or selling it. When you get something, you are demanding or buying it. Sometimes money is involved. Sometimes it is not.” (Eveline J. Adomait, 2012, 30). When you are trading goods or services, it is due to the demand being high on one side and supply being low on the other. Money is the item that is compensated for value when trading most goods. When you purchase something you exchange values. Production consists of the means of mixing primary materials and immaterial, classified to as inputs, in order to create a good which is consumable, outputs. When comparing to wealthy nations, we must understand that these nations are quite productive. They create inputs that are made available to them into outputs in their most successful way. We can use the concept of production and relate it to supply and demand. Understanding production would indirectly lead you towards understanding the demand. Products are mainly produced when there is a high demand for them. Lastly, comparative advantage occurs when a company sells their goods or services at lower prices compared to their competitors and they still get comparative stronger sale margins. Well firstly, we can use supply and demand models to distinguish the comparative advantages. Once we have this figured out, we can understand what goods and services a country(for example) should specialize in. Using the comparative

advantage concept we can understand which system is more productive in creating certain goods. This would increase the supply as well as the demand of these goods! Understanding all these concepts can be useful in understanding the equilibrium point. By using our knowledge of scarcity, value, exchange, production and comparative advantage, we can learn how to reach that point where both the buyer and seller are satisfied.