3. Utility and prices.

Utility is the characteristic of satisfying a want. It is related to the number of factors and a utility change is concerned with the consumer’s relation to a commodity. Utility varies in relation to individual tastes, to geography and to time.

In most economic systems, the prices of the majority of goods and services do not change over short periods of time. But in some systems it’s possible to individuals to bargain over the prices, because they are not fixed in advance. The interaction of buyers and sellers determines the price for goods and services. If the price is too low, a shortage will develop, thereby driving up the price. If the price is too high, a surplus will develop and move the item’s price down. Since no surplus or shortage exists, there is no pressure on price to change. This point is called equilibrium price. At the equilibrium price, the amount producers will supply equals the amount consumers will buy.

The interaction of buyers and sellers determines the price for goods and services. If the price is too low, a shortage will develop, thereby driving up the price. I the price is too high, a surplus will develop and move the item’s price down. And if there is no surplus or shortage, if the amount the producers supply and the amount the consumers buy are the same then the price, which has been fixed, is called equilibrium price of the unit.

4. Income and spending.

Income is the money a person receives in exchange for work or property. There are five types of income: employee compensation, proprietor compensation, corporation profit, interest, rent. Employee compensation is the income earned by working for others. Proprietor compensation is the income that self-employed people earn. Corporation profit is the income corporations have left after paying all the expenses. Interest is the money received by people for depositing their money in saving accounts or lending it to others. Rent is the income from allowing others to use one’s property temporarily. The total income is the sum of these five types. In each category people receive this income in return for providing goods or services. One other type of income is a transfer payment – money one person gives to another, though the receiver hasn’t provided a specific good or service (e.g. gifts, aid to the poor etc.)

When individuals receive any income, most of that income is spent. Spending becomes income for someone else. The money each individual spends multiplies throughout the economy as other receive and spend parts of it. In addition, the choice you and others make can lead to investment spending.

By the type of work people do workers fall into one of four broad categories: a) White collar workers are people who do jobs in offices, such as secretaries, teachers, and insurance agents. b) Blue collar workers are people who do jobs in factories or outdoors. Artisans, such as carpenters and plumbers, are blue collar workers. c) Service workers provide services to other individuals or businesses. Janitors, barbers, and police are service workers. d) Farmworkers are people who work on their own farms or those of others.