How Economics Is Important in Everyday Life

Assignment# 1
KINNAIRD COLLEGE FOR WOMEN
Submitted by: Wania Salman
Roll No: F20BBAM022
Submitted to: Ms. Maryam Rehmat
Course Title: Economics for Management
Semester#: 02
Section: A
Date: February 16, 2020

Topic: Questions/Answers
KINNAIRD COLLEGE FOR WOMEN
LAHORE, PAKISTAN
Batch: 2020-2024
QUESTION: No#:1: How does price reacts to situations of surplus and shortage to bring
the equilibrium to its optimum level?
Answer: A surplus describes the amount of an asset or resource that exceeds the portion that's
actively utilized. A surplus can refer to a host of different items, including income, profits,
capital, and goods. A surplus describes a level of an asset that exceeds the portion used. A
surplus result from a disconnect between supply and demand for a product, or when some people
are willing to pay more for a product than other consumers.
A shortage is a condition where the quantity demanded is greater than the quantity supplied at
the market price. A shortage, in economic terms, is a condition where the quantity demanded is
greater than the quantity supplied at the market price. There are three main causes of shortage—
increase in demand, decrease in supply, and government intervention. Shortage should not be
confused with "scarcity."
Equilibrium is the state in which market supply and demand balance each other, and as a result
prices become stable. A market is said to have reached equilibrium price when the supply of
goods matches demand.
Two curves in graph displays supplies and demands. When the supplies and demands curve
intersect at a point called equilibrium.
Graphical presentation of increase in demand as supply remains constant:
Figure:1.1
If the slope is downwards, it means that price increased and quantity demand decrease.
Graphical presentation of decrease in demand as supplies remains constant
Figure: 1.2
If slopes go up, it means price reduced and quantity demand goes up.
QUESTION: No#2: Explain how economics is important in everyday life. Explain it with
macroeconomics, microeconomics, normative and positive economics, scarcity and
shortage.
Answer: Economics plays an important role in everyday life. From decisions we make for work,
leisure, consumptions and how much we can save all depends on economics. Our lives are
greatly affected by the macro-economic trends in our society such as those of inflation, economic
growth and also interest rates.
Macroeconomics:
Macroeconomics is a branch of economics that deals with how an economy functions on a large
scale.
For Example:
You encounter macroeconomics everyday through the news about the state of the
macroeconomy, the price you pay for goods and services, the tax you pay on income, and the
effects of macroeconomic policy on interest rates. Macroeconomic events and policies in other
countries affect you as well. International trade, another important macro-economic sector that
influences the lives of many.
Microeconomics:
Microeconomics is the study of decisions made by people and businesses regarding the
allocation of resources, and prices at which they trade goods and services.
For Example:
When you rent an apartment. Most people, after all, have a limited amount of time and
money. They cannot buy or do everything they want,so they make calculated
microeconomic decisions on how to use their limited resources to maximize personal
satisfaction.
Normative Economics:
Normative economics aims to determine what should happen or what ought to be.
Normative economics aims to prescribe solutions. Normative economics cannot be
verified or tested.
For Example:
“The government should provide every citizen a health care facility”. Through this, it is
explained that this statement is a personal statement that this should be or ought to be
done.
Positive economics:
Positive economics is the analyzing the economic behavior of the outcome whether it is good or
bad. As an example, high taxes on cigarettes causes less people to smoke because demand falls
when the price rises.
Scarcity:
Scarcity refers to the limited availability of a resource in comparison to the limitless wants.
For example:
People are unable to get clean water because they are facing scarcity. Over hunting of animals
can make them scarce. Over fishing can result in scarcity in that type of fish. Each year a limited
amount of the flu vaccine is available to the population, meaning there is not enough for each
individual to be vaccinated. Shortage of road space compared to number of road users. This is
scarcity.
Shortage:
A shortage is a situation in which demand for a product or service exceeds the available supply.
For example:
Natural calamities that cause the deficiency of necessary products. A government ban on the sale
of the product. Shortage of food or some medicine in market. These are the shortages. Shortage
always occurs for man-made product/service.

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Assignment# 1

KINNAIRD COLLEGE FOR WOMEN

Submitted by: Wania Salman

Roll No: F20BBAM022

Submitted to: Ms. Maryam Rehmat

Course Title: Economics for Management

Date: February 16, 2020

KINNAIRD COLLEGE FOR WOMEN

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