Economics is the discipline of considering general and specific results, and tracing their effects on some planned or already implemented policies of some special or general interest on short or long-term businesses. Economical fallacies are in most cases systematic rather than accidental, and they are almost inevitable. They result from the fact that resources are scarce and efforts are always put in place to ensure equitable distribution. Also, producers of certain commodities are consumers of some others. They will wish to have their product scarce but the other will strive for abundance as well as fetching most with it but purchasing with minimum. Here problems arise and economics comes in.
Prices in the market are dynamic; that is why they are automatically changing. They are usually dictated by demand and supply as well as the cost of production in relation to the returns associated. Due to variation, producers and consumers are in most cases equipped with alternative applications depending on the place where their resources place them at specific times concerned with specific situations at hand. Natural market setting regulates itself and determines what is to be produced at a particular time and what is to be foregone.
Looking deeper into this, we shall notice that when demand for a certain commodity increases, its price rises automatically, and there is also an increase in its supply. This calls for increased productivity, and it attracts new producers. If supply exceeds demand, the price fall pushes marginalized producers out of business due to reducing profit in producing that article and consequently resulting into actual loss. This cycle is enough to regulate market demands. This seems an explanation that the cost of production is the main determinant of price, which is false. In the real sense, price is dictated by supply and demand. However, natural conditions are not sufficient for health business. If waited for self-regulation, some producers would close down their businesses. Due to this, several measures are put in place to artificially manipulate the happenings of market. We shall scrutinize some and see what possible outcomes would be.
Price system is one of the possible outcomes. As explained earlier, if price for a commodity increases, its production and supply rises up to the point where due to excessive availability its price will lower. Moreover, with losses engaged some producers will be removed from business. It balances between alternative applications by allowing automatic consumer-based weights on what is to be produced or not.
Commodity stabilization, which is holding prices of commodities above levels of free markets, is necessary due to the fact that waiting for demand and supply to correct market situations may be erroneous. By doing so, producers are left doomed, pushing the problem further to consumers via scarcity. By definition, stabilization is the correction of fluctuating prices so as to ensure that it is maintained at a certain affordable level without pressurizing the markets. There are ways in which it is ensured. One of them is what is known as government loans. Producers such as farmers are offered loans so that they use them as they hold their crop off market in times when it is in abundant and likely to fetch little. They are expected to bring it on board when they can sell at better prices. It has been revealed that this artificially manipulated supply stimulates other producers, especially in word markets. Thus, it may ultimately result to more problems than anticipated. Also, price seems to remain constant throughout the year due to the fact that entrepreneurs may continue buying and stocking during times of low prices until the time of highly anticipated prices.
Government price fixing, which is holding prices lower than the levels of natural market conditions, is another attempt to control markets artificially. It tries to remove accessibility of commodities of interest and limiting purchasing power. It ensures that there is no competitive bidding that removes the poor. It is put in place through several ways. Rationing is one of them. There are set rules on how much a person should get regardless his/her purchase power, the limit cannot be exceeded according to the dual currency system. Subsidy can also be paid to some commodity producers in case backward price fixing is recognized to bring about shortages. This is in assumption that will compensate the desired productivity and returns. Rather it has been found to benefit consumers than producers. This is because producers do not charge as their wish could be higher while consumers enjoy low prices. Government can still ensure price fixing through cost control. Here it fixes wholesale prices subsequently holding those of retailers.
Minimum wage laws are the laws adopted in effort to raise prices which are also usually observed as a different entity. This results in the ignorance of principles governing other prices on the same commodity both emotionally and politically. Such a situation is witnessed in case where wages are raised to a certain level that pushes a not qualified person for such amount out of employment only to the one who qualifies for it. The person is not comparably compensated. The best way therefore proves not to have been achieved. However, unionization could have served better. Assumption that an industry whose wages has been raised realizes higher prices for its products is wrong. Consumers may opt to seek for the substitute or purchase less of that product. Otherwise, inefficient producers may be put out and production may be lowered while unemployment comes into place. Consequently, two possible outcomes may be deduced. First, people will lack access to the commodity, and secondly, they will lack money to buy even essential commodities. This unemployment may be eased by relief employment program, a result of minimum wage laws. For example, minimum wage laws may provide that one should be paid 75 cents/hour implying that he/she will earn less than 30 pounds per week if total engagement time is 40 hours that week. For instance, the relief program provides that one should be paid 18 pounds per week. This devalues services depriving one of independence and self-respect too. It also lowers a person’s income for his/her own effort. If this is otherwise increased to presumably 30 pounds per week, payment will be above what is worked for rather than it could have been the case for free markets.
The best solution for adding wages would be increasing labor productivity that can be achieved by accumulating capital, making new inventions and improvements, increasing workers’ efficiency and offering better education and training. Unions never help in increasing wages but rather help in keeping both the employers and employees aware of market situations and regulating payment to the employees and averting the risks of being deceived due to the lack of knowledge on value of the services offered. In turn, the employer may be driven to refuse to adopt a person because of the wage output consequently limiting his net income. The unemployed may still turn to less paid jobs to meet immediate needs.
Functional prices and wages is another concept to address ‘just’ prices and wages asked for by amateur economic writers focusing enough on claiming the product back. According to Marxist purchasing power schools, wages are never high enough to allow people claim back the products. The increment is rarely possible in most cases when people look for more on their side rather than focusing to add to their employees. When striving to achieve, it must be noted that it calls for someone else’s cost and therefore increases the production cost. If the government emphasizes on price increase, marginal profit will be denounced from marginal producers thus forcing them out of productivity.
Profits serve important functions of guiding and channeling production to minimize losses that could have been realized due to misappropriation of resources such as capital and labor. Statistically, risks of losing the whole principal in most businesses are higher than profits, especially over long periods. It is only through high risk-taking, self-confidence and optimism that entrepreneurs have ventured into businesses that do not and never would succeed. Naturally, some businesses attract profits that are normally termed as ‘unreasonable’ by government officials. However, they should be left even if they are pressurizing others. The dying ones should be left to die while thriving ones should be left to thrive.
In the modern world, saving equals spending is the assault of saving. It can be seen from the reality that one spends all what he has luxuriously while another saves to release his/her money in different ways not as direct as the spender’s. After all, money from both ends up circulating in different inventions by other people from the original owner. However, the spender will be bankrupt in the long run with the one who saved ending up wealthier having resources more beneficial to the economy of the state.