Are you confused or just do not finish reading an article on economic issues in the world or your country? This usually happens if we are not clear about certain concepts that are fundamental to be able to understand an article, conference or news about economics. That is why today we bring you a list of basic concepts so that you become more familiar with the economic world:
The island of Platzilandia has 100 inhabitants of which 20 are dedicated to the production and commercialization of courses and 30 are dedicated to the cultivation of corn, so the Market of Platzilandia is based on the trade of courses and corn. The market is the environment that favors the transactions that are made of goods and services. These transactions can be between companies, individuals, countries. There are different markets: financial, raw materials, goods and services (wholesale, retail), in general, supply and demand processes are carried out.
Offer and demand
The supply of this island is courses and corn, it is what the producers are offering us to the applicants who in this case would be the remaining 50 inhabitants and also the families of the producers. We know the offer as the quantity of goods, products or services offered in the market. More will be produced as people are willing to pay more, as a producer will not produce if prices are zero. Demand is the amount of goods, products, services that buyers try to purchase in the market, if prices rise, demand decreases. There must be a balance and agreement in the market between supply and demand to agree on a price that benefits both parties.
Gross domestic product
The Gross Domestic Product of Platzilandia is the total production of courses and corn for the sale price. GDP is basically the sum of all final goods and services produced in a country, it is usually measured annually but it is also done quarterly. This calculation takes into account all production within the geographical borders of a country, regardless of whether it is carried out by national or foreign companies. It can be measured by income, expense or value added. Usually we will find it with the spending formula: GDP = Consumption + Investment + Expenditure + (exports-imports).
The final value of the product must be taken into account, if a person sells raw corn to the lady on the corner to cook it and sell it as an arepa , the final value of the arepa must be counted for GDP, the transaction must not be counted between the person and the lady as this would imply double accounting. To collect this data, the countries, through statistical institutes and government entities, develop surveys of merchants, industries, analyze the data from the results statements that companies must report, the collection of taxes, among others. Not everything can be accounted for, since there is the so-called underground economy , which includes topics such as piracy, smuggling, housewives, etc.
Platzilandia wants to open its market abroad to sell its courses and bring tablets to the island, when selling courses abroad it will make exports and when buying tablets it imports, in order to be in this market and make these transactions it must take into account the Rate of Change that is the one that measures the amount of platzipesos, soles, guaraníes that must be paid for a unit of foreign currency, the most used reference currency is the dollar, it depends on which is the currency most used to carry out transactions abroad. This can go up or down depending on the supply or demand of the reference currency, if there is a lot of supply of dollars and few buyers (little demand) the exchange rate goes down and vice versa. Devaluation is when more pesos should be given per dollar, revaluation less pesos per dollar.
The inhabitants of Platzilandia now have children and begin to demand for more corn, but the producers are still the same 30 and their production processes remain the same, it happens then that when there is less corn, it becomes more valuable and therefore its price rises, the Inflation : It is the increase in the price level over time, and not only occurs because demand increases, it also happens when producers’ costs increase and they increase prices to maintain their profits or when price increases are expected in the market. future and producers decide to anticipate them.
Additionally, inflation can also occur when the government decides to print more money to pay its debts and there is a lot of money in circulation, therefore you must give more coins or bills to buy something, the currency is devalued. The most appropriate solution to face inflation is to start producing more and thus grow the economy.
I hope you have understood the concepts with this little story that we tell you, write to us if you want to delve deeper into each of them or know about others that interest you.