0.20 Economic forces  (Page 7/3)

Economic forces

Introduction

Economics is the process by which humans manage their environment and its resources. The process is made up of a system of production, distribution and consumption of goods and services. Natural resources provide the raw materials and energy for producing economic goods, while human resources provide the necessary skill and labor to carry out the process. Different societies manage their economies in different ways. In a traditional economy, people are self-sufficient (i.e., they produce their own goods), but in a pure command economy the government controls all steps in the economic process.

Capitalist countries such as the United States have a system that is largely based on a pure market economy . Buyers and sellers make economic decisions based on the Principle of Supply and Demand . Sellers supply goods and buyers create demand for goods. These two roles are often in conflict: buyers want to buy goods at low prices and sellers want to sell goods at high prices. However, the two sides eventually compromise on a price at which buyers can find sellers willing to sell and sellers can find buyers willing to buy. This is known as the market equilibrium price . The equilibrium price can be considered as the intersection of the supply and demand curves.

Most countries strive to increase their capacities to produce goods and services and consider doing so as a positive sign of development. Economic growth is stimulated by population growth, which in turn increases the consumption of natural resources and increases the per capita consumption of goods and services. Various indicators are used to measure economic growth. One of them is the Gross National Product (GNP) , which represents the total market value of final goods and services produced by a country during a given period (usually one year). Unfortunately, GNP does not take into account the global nature of many companies. If a company produces goods in a foreign country, then the "home" country does not really benefit from that production. Thus, if Pepsi bottles and sells soda in Japan, those revenues should not be included in the GNP of the United States. The GDP (Gross Domestic Product ) provides a better indicator of the health of a country’s economy. This measure refers to the value of the goods and services produced within the boundaries of an economy during a given period of time.

Both the GNP and Gross Domestic Product (GDP) are economic measures and indicate nothing about social or environmental conditions within a country. They are not measures of the quality of life. In fact, severe environmental problems can actually raise the GNP and GDP, because the funds used to clean up environmental messes (such as hazardous waste sites) help to create new jobs and increase the consumption of natural resources. The United Nations Human Development Index is an estimate of the quality of life in a country based on three indicators: life expectancy, literacy rate and per capita GNP.