Question

can you please help me with this question, answer two of the following essay questions.

i need both of them answered in essay form please, i will leave a great review.

ext4VeSY4dmXic1ERfojCgIXEAbZrBmBSDRA/edit?ts=5e6aa6bc All changes saved in Drive - 14 BIVA DE 1E EEEE * Answer two of the following essay questions. T A. Describe how the price system answers the five fundamental questions of economics, and discuss at least two of the short-comings of the capitalist price and market system B. Explain the basic process by which an economy moves through a business cycle. What is meant by a demand-pull inflation? How does a demand-pull inflation differ from a cost-push inflation? Explain.

Answer 1

A)  There are five fundamental questions in economics

1. What will be produced?
2. How will goods and services be produced?
3. Who will get the output?
4. How will the system accommodate change?
5. How will the system promote progress?

In a free enterprise capitalist economy, the price mechanism, i.e., the free market forces of demand and supply, help to solve the fundamental economic problems of an economy. Price system indicates what goods and services should be produced. Secondly, how goods are to be produced can be learnt from the price system. Thirdly, prices play a role in the distribution of goods and services among the members of the society.

1. What will be produced? The price system will determine what is produced because higher prices mean higher profits and firms will produce the goods and services that yield the highest profits.
2. How will goods and services be produced? Goods and services will be produced at the lowest cost, which is determined by the prices of the different inputs that can be used to produce the products.
3. Who will get the output? Determining who will get the products will be determined by what people can afford. This is dependent on both the consumer's income and the prices of the products.
4. How will the system accommodate change? Prices help define the change that is going on in the market and the changing prices will help the market adjust.
5. How will the system promote progress? Because newer products have higher prices (and higher profits), new goods and services will be developed because firms will know the value of doing so.

shortcoming of the capitalist price and market system is ,

1)firms are constantly driven by profits, not necessarily what is best for society in the long run.

2)firms might set prices higher than is socially optimal, resulting in a deadweight loss.

B)  The business cycle is a cycle or series of cycles of economic expansions and recessions. The four stages of the business cycle are recession, trough, expansion, peak.

Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough.

An expansion is characterized by increasing employment, economic growth, and upward pressure on prices. A peak is the highest point of the business cycle, when the economy is producing at maximum allowable output, employment is at or above full employment, and inflationary pressures on prices are evident. Following a peak, the economy typically enters into a correction which is characterized by a contractionwhere growth slows, employment declines (unemployment increases), and pricing pressures subside. The slowing ceases at the trough and at this point the economy has hit a bottom from which the next phase of expansion and contraction will emerge.

Demand pull inflation is a rise in the overall price level because of an increase in aggregate demand causing the equilbrium price level to rise.

Cost-push inflation, on the other hand, is inflation caused by producers raising their prices in response to higher costs of production.