Recession
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Today more than ever, there is a major and constant fear of an impending recession in our governmentĂ²Ăââ˘s economy. A recession is a downturn in the economy when output and employment are falling for at least a period of six months. (Krugman and Wells, 2006) This is due to a number of factors: people buying less, a decrease in factory production, growing unemployment, a slump in personal income, or an unhealthy stock market. (Harris, 2002) These factors including scarcity, choice, and opportunity cost are the reasons that an economy is considered in a recession and how something like this happens.
One main impact on what happens in and to the economy is the factor of choice. The economy cannot work on its own; it needs the consumers to drive it based on their wants. The producers and consumers are the driving force of the economy. This is where resources come into play. Resources are anything that can be used to produce something else such as land, labor, physical capital, and human capital. (Krugman and Wells, 2006) These resources are what allow producers to create products, and for consumers to purchase and use what is produced. Supply and demand also play a part in the producer/consumer relationship. ProducersĂ²Ăâ⢠outputs and prices are based on the willingness of the consumers to purchase the products. However, what happens if the resources all of a sudden become scarce and there is a shortage? How does this affect the state of the economy?
Firstly, if certain resources become scarce, the price of the remaining supply will go up. In order to try to recoup losses, the prices of resources that the producers have to purchase to create products will increase. This in essence will throw off the entire flow and stability of the economic system. Scarcity causes trade-offs which then lead to an opportunity cost, or what is given up. Due to the scarcity of products, producers must pay more to get the material they need, which forces them in turn to raise the prices that the consumers must pay, which leads to the next point: individual choice.
Secondly, as stated before, the economy runs by the decisions that the consumer makes: choices, whether it is to buy or not to buy. The choice to perform a certain action includes the choice of not performing a certain action. (Krugman and Wells, 2006) For example, the choice to buy a burger from Burger King includes the choice of not buying a burger from McDonalds. Individual choice is included in both the producer and consumer category. The producers must make a decision on which resource to use, which products will be created, amount that will be created, how much it will cost, and where it will be sold. On the other hand, the consumers also have choices to make, such as what to buy, when to buy, how much to buy, and where to get it. These factors of individual choice also spill over into the realm of opportunity cost, or what one must give up in order to get a product. (Krugman and Wells, 2006)
A personĂ²Ăââ˘s opportunity cost is based on the choices of doing one thing or another. For example, the opportunity cost of buying the burger from Burger King is forgoing the microwave taste of their burgers. Whether good or bad, it is the cost of choosing one over the other. Both producers and consumers encounter opportunity costs and in the end must make a decision that will affect the rest of the economy. Economics deals with the efficiency the scarce resources are used and the opportunity costs involved. The choice can be between the overall costs vs. overall quality, and the decision would be based on the opportunity cost of the situation.
No matter how you look at it scarcity, choice, and opportunity cost are concepts involved in almost every aspect of the economy and how it is affected. It is no different when it comes to