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    Economic Issues and Concepts

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    Paige Nathaniel
    Microeconomics deals with how individuals and firms make decisions regarding scarce resources. It examines how producers and consumers allocate resources between alternative uses. Resources include land, labor, capital, and entrepreneurship. Because resources are scarce and not enough goods and services can be produced to satisfy all wants, opportunity costs must be considered. The production possibility curve illustrates the tradeoffs between different goods an economy can produce when resources are fully utilized. Economic systems differ in how they answer questions about what to produce, how to produce it, and for whom based on the degree of government involvement versus market forces.

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    Economic Issues and Concepts

    Uploaded by

    Paige Nathaniel
    29 views5 pages
    Microeconomics deals with how individuals and firms make decisions regarding scarce resources. It examines how producers and consumers allocate resources between alternative uses. Resources include land, labor, capital, and entrepreneurship. Because resources are scarce and not enough goods and services can be produced to satisfy all wants, opportunity costs must be considered. The production possibility curve illustrates the tradeoffs between different goods an economy can produce when resources are fully utilized. Economic systems differ in how they answer questions about what to produce, how to produce it, and for whom based on the degree of government involvement versus market forces.

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    Microeconomics deals with how individuals and firms make decisions regarding scarce resources. It examines how producers and consumers allocate resources between alternative uses. Resources include land, labor, capital, and entrepreneurship. Because resources are scarce and not enough goods and services can be produced to satisfy all wants, opportunity costs must be considered. The production possibility curve illustrates the tradeoffs between different goods an economy can produce when resources are fully utilized. Economic systems differ in how they answer questions about what to produce, how to produce it, and for whom based on the degree of government involvement versus market forces.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    29 views5 pages

    Economic Issues and Concepts

    Uploaded by

    Paige Nathaniel
    Microeconomics deals with how individuals and firms make decisions regarding scarce resources. It examines how producers and consumers allocate resources between alternative uses. Resources include land, labor, capital, and entrepreneurship. Because resources are scarce and not enough goods and services can be produced to satisfy all wants, opportunity costs must be considered. The production possibility curve illustrates the tradeoffs between different goods an economy can produce when resources are fully utilized. Economic systems differ in how they answer questions about what to produce, how to produce it, and for whom based on the degree of government involvement versus market forces.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 5

    ECONOMIC ISSUES AND CONCEPTS

    What is Microeconomics?

    The branch of economics that deals with the behaviour of the individual producer and
    consumer, particularly as decisions are made with respect to the allocation of limited
    resources.

    Resources are scarce because we live in an economy where there is not enough of
    everything for everyone. Hence the basic economic problem is of choice under
    conditions of scarcity.

    Types of resources

    1. Land: All those gifts of nature such as forests, minerals etc.


    2. Labour. All human resources, mental and physical, both inherited and acquired.
    3. Capital: All those man-made aids to further production, such as tools, factories
    and machinery, which are used in the process of making other goods and services
    rather than being consumed for their own sake.
    4. Entrepreneurship: Those people who take risks by introducing new products and
    new ways of making old products. They develop new businesses and forms of
    employment.

    These resources (Land, Inbour, Capital and Entrepreneurship) are called factors of
    production.

    Choice and Opportunity Cost

    Because no economy can produce enough goods and services to satisfy all of its citizens'
    wants, choices must be made. Opportunity Cost is a measure of costs expressed in terms
    of alternatives given up, rather than in terms of money.

    The concept of opportunity cost can be illusfrated by the production possibility curve.
    The curve shows all of the combinaüons of goods that the economy can produce when all
    resources are fully employed.

    Page
    Important Points about the Producdon Possibility Curve

    1. All points on the curve show feasible and efficient combinations of production.

    2. All points within the curve show feasible and inefficient combinations of
    production.

    3. All points outside the curve show unattainable combinations of production.

    4. The curve is negatively sloped because in a fully employed economy more of one
    good can be produced only if resources are freed by producing less of other goods
    (opportunity cost).

    41

    5. The curve is concave to the origin since it reflects the law of increasing
    opportunity cost (to produce more of one good a successively larger amount of
    the other good must be sacrificed). Increasing opportunity cost occurs because
    resources in the economy are not all perfectly adaptable to the production of
    both types of goods.

    6. Economic growth (an increase in the economy's ability to produce goods and
    services) shifts the curve outwards. Some of goods that were
    previously unattainable become attainable.

    Page
    c-+±AL 900b

    Diagram shows the Economy's Production Possibility Curve Note

    the following:

    1. Points A, B and C represent full uülization of resources.


    2. Point S represents underutilization of resources
    3. Point R represents an unattainable combination of goods.
    4. More consumer goods must be given up in moving from B to C, than in moving
    from A to B, although in each case the gain in capital goods is the same.

    Economic Systems

    An economic system is the set of mechanisms and institutions that resolve the what,
    how and for whom questions (i.e. what, how and for whom to produce?) The various
    types of economic systems are:

    Page
    51

    1. Traditional System: One in which economic decisions are based primarily on


    fradition, custom and habit (production is allocated according to long established
    fradition). There is limited private ownership of resources.
    2. Command System: An economic system characterized by the public ownership of
    resources and cenffalized planning. Government planners, as representatives of
    the people, answer the three questions through Cenfral plans. North Korea is
    perhaps the most centrally planned economy in the world today.
    3. Market System: An economic system characterized by the private ownership of
    resources and use of prices to coordinate economic activity in unregulated markets
    (markets answer the what, how, and for whom questions). The U.S.A is among
    the most market-oriented economies in the world today.
    4. Mixed System: An economic system characterized by the private ownership of
    some resources and the public ownership of other resources. Here, some markets
    are regulated by government. Barbados is an example of a mixed system.

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    61

    Page

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