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Thomas Sowell stated that the primary lesson of economics is scantiness: it is hardly sufficient to contain the individuals who want it, and the primary lesson of politics is to assume the primary lesson of economics. However, the advanced wave of AI brings intelligence to us and prediction, a crucial element of intelligence. Artificial Intelligence (AI) revolves around building innovative machinery competent in accomplishing tasks that ordinarily require human intelligence. The rapid improvement of technology has significantly impacted the economy relating to productivity, growth, imbalance, pricing power, reorganization, and employment. AI is predicted to cause a drop in the cost of a preliminary order input into most of the business tasks in our lives. The cost of prediction has dropped as most of it is used to counter traditional prediction shortcomings like inventory management as prediction is cheap, fast, and better. This paper seeks to analyze how economists have continuously taken the time and charmed out of technology and the importance of AI to other relative technologies. It is distinctive research in the economics of Artificial Intelligence and the effects of economic growth and labor markets.
Economics is a branch of knowledge that analyzes scarcity, the utilization of resources by the people, and responds to stimulants, or analysis of decision-making. Economics is categorized as social science; therefore, economics is an academic relative of political science, anthropology, psychology, and sociology that analyzes personal individuals’ behavior and groups’ behavior. Economics is crucial as it enables people to understand the world and the environment around them and how it operates. It also helps individuals understand other people, businesses, and markets and why they make economic choices. Economics is relevant to the people as it offers a very high-paying job market that varies depending on location, experience, and the selected sector (Kline & Moretti 2013). Economics has equipped individuals with skills to solve problems around them that allow them to succeed in a wide variety like law, finance, and foreign affairs. In economics, the approach to index number theory assumes that the distinguished price and quantity data are derived as solutions to varieties of problems in economic optimization. Quantities are presumed to be functions of prices rather than self-reliant variables. The economics approach is essential in analyzing and understanding the exchanges of decisions in economics. It also guarantees personal decisions about buying, working, and saving, essential personal freedom that most individuals value. Even with shifts in budget constraint, scarcity is constant, though at different levels.
In economics, supply and demand determine the flow of the market and the prices. When the demand for a product rises, the price also rises. The higher the price, the more the supply of the product. The demand and supply curves consider certain complexities and qualifications that are often straightforward. The law of demand dwells on the negative correspondence between the price and the number of goods demanded. The markets equilibrium is achieved by equating the quantity demanded and quantity supplied concerning the price. The purpose of the market is to establish an equilibrium in prices that ensure a balance of supplies and demands for goods and services. Economic theory points out that price tends towards a position where the quantity demanded equates to the quantity supplied. The costs and supply of goods often vary depending on the people, location, and the goods demanded. The law of supply and demand is immensely influential in determining the Market-clearing price, that as the product of a particular good goes up, there is less demand among the consumers and the market receives supply. In cases where the price is exceptionally high, the supply will certainly be greater than the demand leaving the producers thrust with the excess products.
On the contrary, consumers demand more of a good, and the market receives less supply as the excellent price goes down. Economic efficiency ensures achieving many benefits from scarce resources. It is impossible to increase a good quantity without decreasing the number of other goods. The analysis of economics dwells on a positive analysis of how people, firms, and governments behave rather than the expectations on how they should behave.
However, there is a ubiquitous concern that economic growth is shared unfairly and that the economic crisis has broadened the existing gap between the poor and the rich. The inequalities based on market income have risen exponentially in modern economies and some emerging that is vast in market economies. As the income grows in the early stages of development, income distribution would first aggravate and then improve later on as a broad component of the human population takes part in the income rising nationally. Capitalism has dramatically facilitated income inequality in society. Capitalism is often described as a winner-take-all society; there is an adjuring advantage in finance for those at the top of the hierarchy and no financial advantage for those down in the hierarchy no matter how good they are in the sector. The distribution of wealth and income abide by a power law, but the growth rates and distribution of wealth and income follow a power law. When an individual or a firm gets certain advantages over their competitors, the actions become fortified, resulting in the rich and the poor getting poor. The winner-take-all markets drastically widen the existing gap between the rich and the poor by concentrating all recompenses among a small number of winners (Ayres 2020). In the distant future, the poor in a state growing at a higher rate can better their living standards than those in the middle-class country but with a lower growth rate as long as the income distribution remains constant over time. The inequality in income distribution with growth worsens poverty in any country. An increase in inequality is a significant increase in poverty, and vice versa applies.
The markets have also shown a difference in the earnings between men and women. Women have reported earning approximately less than two-thirds of what their male counterparts earn. The difference in the earnings between men and women is partly accounted for by the difference in labor market elements of men and women, dissimilarities in the dissemination of men and women among contrasting jobs, and chauvinism in the labor markets. The gap in gender pay is an immense problem from a public policy outlook as it lessens the economic output, meaning women are much more likely to be vulnerable on payments by welfares, to a great degree in old age. The earning difference based on gender significantly impacts pensions for women at around 50 years. Women have lower pensions than men because they earn less than men. As a result, older women are more likely to experience poverty than older men. The monopsony theory analyses instances when there is only a single buyer; for instance, labor and wage discrimination is described by inequalities in labor potency restrictions among the workers. Women have often appeared to be less sensitive on pay than men; therefore, most employers exploit this and distinguish their payment to women workers. However, women progressively acquire training and schooling to occupy certain professions, showing they are committing to full-time work. This will undoubtedly increase the future earnings of women relative to men.
In economics, market participants cannot dictate and are often referred to as price takers. They often have no option but to accept the current prices in the market as they lack the market power to influence the prices of services and goods. A competitive market is one with multiple producers competing amongst one another to hopefully provide goods and services that the consumers want and need and that no single producer can dictate the state of the market. Price takers exist in a superbly competitive market because all the companies are involved in selling identical products, availability of plentiful sellers and buyers, no barriers on entry or exit, and buyers can access information on the price charged by different companies. The agricultural market is often full of companies that are price takers. To emphasize, in a superbly competitive market, the market controls the price. The market structure often dictates the firms’ differences and categories based on the types of goods they mainly sell and how external factors and elements affect their operations (Maracine et al., 2020). Market structure eases the understanding of diverse markets characteristics. The market structure entails elements like the size and number of sellers, nature of the products, costs of selling, price, and barriers to entry and exit.
The stock market is the combination of stocks representing the claims on businesses’ ownership. Investment in the stock market is often through stockbrokers and platforms on electronic trading. In the US, the decline in stock prices reduced wealth like in 1929, concentration demand, and the actual output. The economy often falls by 50% during recessions, but then the economy recovers within a year or two. The stock market is among the fundamental ways companies can raise money, in line with debt markets that are often imposing but rarely trade publicly. It allows companies to trade publicly raise more capital for expansion by selling shares of ownership of the business in a public market. The Great Depression was the international economic metropolitan from 1929 and lasted until 1939. It was the most severe depression ever experienced by the modern Western World. It sparkled vital changes in the economy’s institutions, policies of macroeconomics, and economic theory. The Great Depression originated in the US and led to extreme dwindling in output, acute unemployment, and dreadful deflation in most countries of the world. Decrease in the demand by the consumers, panics on finances, and fallacious policies by the government led to the fall of economic output in the US, while the standard of gold that linked almost all the countries in the world within a network fixing exchange rates in currency was a critical factor in transferring the downtown of America to other states. The recovery was influenced highly by neglecting the gold standard and focusing on monetary expansion. Human suffering and intense changes in economic policies were among the economic impacts of the Great Depression.
The crash in the stock market reduced the assumed demand significantly in the US. The consumers’ purchases of durable goods and business investments fell steadily after the crash. The instability on monetary in the 1930s derived unsteadiness and hindered the exchange process. The Smoot-Hawley Tariff legislation passed in June 1930 increased tariffs by an extensive 50% and even more on approximately 3,200 imported products (Claussen 2021). With time the countries in the world recovered and managed to improve on their economic levels. However, during the late 2000s, there was a steady decline in activities in the economy caused by the Great Recession. Since the Great Depression, the Great Recession was the only notable downturn during that entire time. It applied to both the United States recession from 2007 to 2009 and the emerging global recession in 2009. The flop in the economy started when the housing market in the United States moved from resonating to detonating, and vast mortgaged-backed securities and subordinates lost extraordinary value. The US Federal Reserve advocated for lower interest rates in trials to stabilize the economy, and the Feds held low-interest rates. Policies by the federal government encouraged ownership of homes, the low rates in interest sparked the steady reverberation in real estate and the financial markets from 2001. The innovations in finances like brandy types of subprime and convertible mortgages enabled unqualified borrowers to get magnanimous home loans with expectations that the interest rates would remain low and the prices of homes would persistently rise evermore. However, the federal reserve increased interest rates from 2004, resulting in a burst later referred to as the housing bubble. Belligerent measures on monetary policies had to be adopted by the Federal Reserve and other central banks to counter the Great Recession. The Great Depression and the Great Recession are two events that hit the world’s economy to its extremes.
One can hardly discuss economics thoroughly without considering the clashes between Keynes and Hayek on modern economics. They are the most influential economists of the 20th century that represent varying theories and ideas about the instability of the economy, central planning, and the activities in the political process. In the first debate, Keynesians believe that markets are naturally unstable, but then the government’s cautious use of fiscal policies can average the business cycle’s peaks and valleys. In contrast, Hayekians believe awkward policies by the government, specifically the expansion of credit in excess, result in the business cycle, and stability can be boosted if policymakers solely trailed stable policies. In the second debate, the Keynesian view states that the government’s intervention is essential to maintain the macro-economy and correct the failures in the market and ensure equal distribution of income. Contrary, Hayekians maintain that planners of the government lack sufficient information to manage the economy, and their efforts to gain the information will only do more damage than good. Adam Smith differs as he argues that the government should not interfere for any reason with the market. In economics, some view the outcomes of the business market as controversial and interventions by the government are effective, while others argue that market outcomes are fully efficient and interventions by the government have certain shortcomings.
Economics is as essential to the government as it is to the people. The existing relationship between government tax revenue and expenditure is essential in making fiscal policies and the management of macroeconomics. The same government expenditure that influences the national GDP also affects tax revenues by the government. The government comes up with decisions on expenditures and revenues concurrently. Therefore, the treasury is expected to increase revenues and reduce expenditures concurrently to manage the deficits in the budget. The conjoint adversity existing between government revenues and expenditure can entangle the efforts by the government to control the deficit in the budget. In an attempt to reduce government expenditure, there is often a decrease in the tax revenues imposed by the government (Ghosh 2020).
Despite the enormous importance of decisions by the government in all stages of economic life, economists treat actions by the government as extrinsic and variable. It is determined by government considerations that lie beyond the view of economics. However, economists are forced to make rules that showcase how the government is expected to make decisions because of the marginality of government actions. Over statements of a decision rule guiding to control the government’s actions are very rare in the theories of economics. Even though it does not disqualify the reality that most economists of welfare and theorists of public finance assume that the required function of the government is to optimize social welfare. The various theories of economics have set the government actions untouched because the government has carried itself independent from the rules governing the financial world. However, the government has kept a tight overlook of any individual state’s earnings, productivity, and the job market.
The relationship between earnings and productivity is a particular policy that has been relevant over the years due to the economic crisis and arising inequalities between countries—a balanced trade commands that wages grow with national productivity and the targeted inflation rate. There is an essential bond between the growth of productivity and wages. The idea is that wages at the microeconomic level are intimately related to centralized productivity, as depicted in the relationship between wages and productivity, in line with the traditional microeconomic theory. Labor demand is also expected to increase with an increase in productivity per unit of labor input because more increase in production increases the firms’ profit. The interconnection of productivity growth and the average increase in wages results in the continuation of growth in output and attainment of higher employment levels. The interconnection also contributes to the close of competitiveness gap between the economies specifically affected by the recession and those impacted slightly and managed to stand out from the downswing quicker. The public policy is often expected to achieve wage moderation and improve competitive positions in distant countries through reforms that provide wages less than productivity. Similarly, policies of moderation on wage must take account of essential variables impacting the productivity growth, like changes in elements of the job market.
The standard microeconomic theory presents a transparent interconnection between productivity, wages, and labor demand. In theory, wages coincide with the centralized productivity of labor and can be achieved by maximizing the profit actions of a firm. The increase in productivity per unit of labor input increases the demand in labor while wages are kept constant because more increase in production increases the profits. Wages vary depending on the job risk, location, working hours, and the work environment. In a fixed labor supply, an increase in the demand for labor results in higher pay until a contemporary equilibrium that maximizes the profit is reached where wages can equal the centralized productivity again. The increased competition in the job market gave rise to robotics. It was necessary to increase supply and counter the relatively growing market.
Robot economics revolves around understanding the market for robots. Robot markets often operate through the interaction between the robot makers and the users of the robots. Robots are substitutes for elements like labor and capital goods and are intense factors of production. In analyzing the economics of robotics, one considers the effects of introducing robots on the markets on other factors and the products produced by robots. Robots are widely spread in the agricultural, medical, and retail markets. Manufacturers like Samsung Electronics and Toyota Motor Corporation are major participants that operate in the global robotic market. Artificial Intelligence has facilitated automated systems expected to reach and exceed human performance on various tasks. The robot apocalypse is a modern term referring to the fear in the advancement of technology, but then robotic is not new. In 1589, Queen Elizabeth refused to offer a patent to an individual who invented the mechanical knitting machine for fear it would outwork the knitters. New technology was viewed to destroy firms, jobs, and industries, although those changes led to new companies and jobs. Therefore, best referred to as destructive creating. The general impact is an increased living standard, and other people are therefore left in the worst situations. Even today, leaders still view AI as the worst thing to human civilization. Elon Musk, Tesla CEO, has expressed AI robots to be lethal.
Any firm that focuses on investing in the capital is certainly assured of increased productivity. Firms often invest in productivity, which is the increase in capital to reduce the cost of production, increasing the probability of earning profits. It then lowers the prices of goods and services, making households richer and increasing the demand for goods. An increase in public demand for services leads to increased demand for labor. A good example was the starting of ATMs in the 1970s when people feared that bank tellers would lose their jobs. However, ATMs reduced the cost of operating branches of banks leading to an increased number of branches, and therefore additional tellers were hired. Resource exhaustion includes exploits on the computer crash, hang, or obstruct targeted programs, which dramatically affects the AI (Nguyen et al., 2021). The impact of productivity is powerful to counter the impact of displacement, though not enough to take over the displaced jobs on its own. Many people have been worried that the oncoming wave of Artificial Intelligence will negatively affect the labor markets and the distribution of income to a point where policy intervention by the government will be mandatory. People who played a role in creating the tech companies like Bill Gates (Windows), Mark Zuckerberg (Facebook), and Elon Musk (Tesla) have expressed anxiety about AI. They have proposed a government-funded universal basic income for all individuals. It will contain tax funds and unlimited income to citizens, notwithstanding their employment status or the level of income. Hence, the economy giants will be taxed in attempts to diffuse the benefits of AI more uniformly and impart a basic, maintainable income for family circles negatively affected by AI across the world.
The increased financial industries have given rise to the need for economists to help manage the business markets. Economists require specific tools to manage and maintain the continuous flow of products in the markets. First, there is opportunity cost. Opportunity cost is the most preferred substitute that one must let go of due to making confident choices. Opportunity costs are prejudice, and they differ across individuals. An individual is less likely to select a more costly option. Secondly, trade and mutual gain are also essential. Mutual gain is often valued as the premise of trade. It stresses that an individual can create value through exchanges that move to individuals who mainly value them. Thirdly, transaction costs cannot be neglected. Transaction costs are the resources, effort, and time required to negotiate a good negotiation. The internet has reduced transaction costs and built trade through eBay, Amazon, and iTunes. People also value intermediaries because they help reduce transaction costs; therefore, many values their services. Property rights give the freedom to use, control, and get credit from a good or resource, while private property rights include the legal defense from invaders and the right to transfer to any other individual, the rights of the consumer transfer to their freedom to choose a product of their choice in the markets depending on their needs.
The price elasticity is a vital reflection when pricing a product or service; it depicts how receptive demand is to price change. Price elasticity measures the effect of any divergence in price that will navigate the available quantity purchased. It entails the extent to which the pricing will depict the purchasing decisions by the consumer. Consumers are not likely to purchase a product when prices are high; however, they are likely to purchase when the price is low for the highly elastic good. Consumers are likely to purchase the same quantity notwithstanding changes in small price for the low elasticity goods. Various factors act as barriers to free entry into a market. The barriers include economies of scale, government licensing, patents, and control over an essential resource. A monopoly is a market in which there are no perfect substitutes, therefore building single sellers of a widely known product due to the high entry barriers. Monopolists expand their output until marginal revenue equals the marginal cost to maximize their profit. Monopolists are expected to charge price along the demand curve with the same output level, while in low entry barrier markets, the price charged by a searcher of price is often more than its marginal cost.
The gains from trade are the general achievements to the agents of economics from being offered a rise in non-mandatory trading. International trade lowers priced imports by increasing the national income and measuring gains in trade and the cost of production. Various international labor unions govern the markets in the world. Labor unions often ensure improved pay, benefits, and good working conditions. Labor unions always choose representatives to participate in collective bargaining on behalf of the people. The labor union has diverse members from all the regions depending on the region to which the union is in effect. However, the decisions by the court and legislation have incapacitated the capabilities of the organization of the unions. Labor unions always ensure the economy is steady and the rights of businesses and the market are fully have adhered to. Adam Smith’s thesis explains the action of human beings who often dwell on their self-interest achieves prosperity. In the free trade markets where everyone has the freedom of production and exchange as they wish, widening the markets to domestic and foreign contesting promotes prosperity more effectively. The wealth of nations directs that an individual’s desire to realize their self-interest leads to societal achievement, commonly referred to as the invisible hand. Smith was against the government getting involved in the market activities. He stressed that the role of the government was to protect national borders, enact civil law, and indulge in public works.
Economics also relates to the health care sector that analyses the various factors that merge up the industry’s cost and spending. Health care economics can be accessed from different views concerning the problem one faces. Hospitals internationally are facing fatal challenges in finance because of the covid-19 pandemic. The American Hospital Association approximates $50.7 billion lost revenue monthly into the hospitals in America and the healthcare systems. The vast number of cases every day influenced the care of patients and surgeries. The World Bank projected that global growth would shrink by about 8%, and the poorer countries will be the most impacted. It will cost the United Nations approximately 2 trillion dollars this year to stabilize the economy. The world will benefit from the action plans that will be used to counter any oncoming disaster and pandemic.
In conclusion, economics forms the backbone of any government. However, the world is experiencing transformations, which are essential in maintaining the stability of the markets and the continuous flow of goods. The government protects the markets though some theories advocate for free operation of markets without the influence of the government. The demand and supply curves ensure that the job market operates while ensuring the safety of the consumers. The job markets are efficient stabilizers of the economy and therefore pose the need to protect the markets from any internal or external inversions. The covid-19 pandemic hit the world in the worst way because there was no preparation for a pandemic of that kind. The world’s economy considerably dwindled and will probably take several years for impoverished states to recover. The AI was of great advantage in improving the economy by improving production efficiency in the markets. AI has turned out to be a threat to the prosperity of the nations; it has stimulated the growth of economies because of increased production in the states. Embracing AI should be followed with measures to ensure the survival of humans and continuous income even when robotics seem to take over the world.
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Kline, P., & Moretti, E. (2013). Place based policies with unemployment. SSRN Electronic Journal. doi:10.2139/ssrn.2210840
Mărăcine, V., Voican, O., & Scarlat, E. (2020). The digital transformation and disruption in business models of the banks under the impact of FinTech and BigTech. Proceedings of the International Conference on Business Excellence, 14(1), 294-305. doi:10.2478/picbe-2020-0028
Nguyen, V., Lin, P., Cheng, B., Hwang, R., & Lin, Y. (2021). Security and privacy for 6G: A survey on prospective technologies and challenges. IEEE Communications Surveys & Tutorials, 23(4), 2384-2428. doi:10.1109/comst.2021.3108618
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