In the two readings that we were assigned, there were several economic terms and concepts that were relevant and can be tied to class. From “Adam Smith and the concept of individual self-interest”, self-interest and a “modified market economy” is introduced. From “Determining Prices”, we are given the concepts of “market equilibrium”, surplus, and shortage.

Self-interest refers to producers. In Adam Smith’s views, a producer would take in his/her own self-interest and produce what people wants most. This is because people would be more likely to buy what they want than what they don’t want. A producer would satisfy demand to sufficiently make a profit. For example, in the activity involving running an inn, my group took the role as producers of a night’s stay and a meal in an inn. We wanted to make sure the price was low enough to attract consumers, but high enough for us to make a profit. We kept prices low in our self-interest because we wanted to make sure that potential consumers would want to buy the product, giving us our intended revenue. A “modified-market economy” refers to an economy in which the consumers and producers make most economic decisions. These decisions include what and how many to produce, and what and how many to buy.

Market equilibrium, surplus, and shortage are concept that we have already explored in the past. Market equilibrium is the price in which both the supply and demand of a product are equal. This benefits both the producer and the consumer. It benefits the producer the most because the producer will face neither surplus nor shortage, giving him/her the maximum potential profit for that supply/demand schedule. These concepts are present in the inn activity as well. A part of that activity was for the producers to act as consumers as well, and choose a product to buy out of all the choices. At the end, the producers would calculate how much they sold, whether they have a shortage; the producer did not have enough of a product to meet demand, or a surplus; the producer had too much of a product, and whether they made a profit or suffered a loss.

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