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Microeconomics is a branch of economics that studies the behaviour of individual households and firms in making decisions on the allocation of limited resources and studies individual prices. It also analyses demand and supply of labour and analyses demand and supply of goods.
Economics is a science that studies human behaviour as a relationship between ends and scarce means which have alternative uses. It also the study of how men use limited resources in order to satisfy their unlimited wants and how human beings make choices to use scarce resources to satisfy
1. Three basic economics problem and how the how the different economic systems solve the economic problems.
There are three basic economics problem. The first one is ‘what’ which mean what to do produce due to limited resources that have and what should the economy produce in order to satisfy consumer wants. For example, a company want to produce laptop or hand phone which both have their own function or use to consumer or user which refer that maximises consumer satisfaction then the economy is allocatively efficient.
Second one is ‘how will’ which mean the quantities to produce due the demand from consumer or user and due to the population with resources that available because it one of an economy achieves productive efficiency if it produces goods using the least resources possible. For example, many consumer or user want buy hand phone than laptop, so the company should produce hand phone more due the demand from consumer or user.
Lastly, ‘to whom’ which mean to distribution, depend on the distribution of income and depend on who want to pay or should the economy produce goods targeted towards those who have high incomes or those who have low incomes and what sort of demographic group should the goods in the economy that are produced be targeted toward. For example, consumer or users that are willing and be able to pay or buy the produce that they want.
So, with if all three problems are addressed at any one time then the economy has achieved static efficiency. If the economy achieves static efficiency over a period of time then it is dynamically efficient. All these problems are focused around the problem of unlimited wants and limited resources which resources are the factors of production such as labour, capital, technology and land which are used to produce the products that satisfy the wants.
There are also how the different economic systems solve the economic problems. Different societies have performed these economic functions, and sought to achieve technical and allocatively efficiency, in different ways. These ways can be classified as different economic systems. The first new economic system was Capitalism or the market system. However, early capitalism left many people in poverty, while competitive markets decayed into monopolies. In response, social reformers developed alternative economic systems. Fascism and Socialism attempted to fix capitalism with a dose of government participation. Communism simply sought to overthrow capitalism. It was a struggle between the “invisible hand” of free markets and the “visible hand” of the command (planned) economy.
2. Scarcity, choice and opportunity cost
Scarcity refers to resources that are not enough meet all wants which it want always exceed limited resources to satisfy society. In other words, human beings have unlimited wants which there is never such a time that a human being is satisfied and not in need of anything. It also refer to the fundamental economic problem, and all economic activities revolve around trying to solve this problem and the other sides, a good which is usable but in abundant supply may not qualify to be called an economic good. For example, air and water are just ‘goods’ in the sense that they are readily available and cannot be deemed to be scarce.
Then, another concept in economics is that know as choice. Choice comes about as a result of scarcity, and in a way, choice is informed by these circumstances. Since human wants are unlimited and resources limited, it emerges that one cannot be able to practically meet all their wants at any one time and because of this, it becomes inevitable for someone to choose between the many unlimited wants which one o satisfy at any given moment. Since you make a choice of doing something, or fulfilling a certain want, it turns out that at any one time, there is a certain want that you have to ignore, or forego, in order to fulfil another want. For example, you were deciding to grow carrot or potatoes which one of them will become the option to be foregone.
After that, the option that has been foregone is usually called an opportunity cost. Opportunity cost refers to second best alternative that has to forgone for another choice which give more satisfaction. For example, if you decide to grow carrots, your opportunity cost is the alternative crop that might have been grown instead potatoes.
3. Four assumption in draw a production possibility curve (PPC)
PPC is A graphical representation of the alternative combinations of the amounts of two goods or services that an economy can produce by transferring resources from one good or service to the other which can helps in determining what quantity of a nonessential good or a service an economy can afford to produce without jeopardizing the required production of an essential good or service. It also can be called as transformation curve.
There are four assumption in draw a PPC :
- Produced only two goods only
- Fixed amount of resources
- Full employment
- Constant technology
Example curve of PPC
There are also factors that can influence the PPC curve to shift. The first one is changes in the resources or factor of production. The influences are divided to two shift which refers to, shifting to the right which means increasing in PPC and shifting to the left which means decreasing in PPC. For example is shown at below.
Assume: i. PPC1 and PPC2: Discovery of new resources in Chicken and Fish.
ii. PPC3: Decreasing in resources.
The second one is changes in the level of technology. For example is shown at below.
Assume: i. PPC1 and PPC2: Technology advancement in Fish only.
The third one is changes in economic condition which economic growth or economic recession. The influences are divided to two shifts which refer to, shifting to the right which means increasing in PPC and shifting to the left which means decreasing in PPC. For example is shown at below.
Assume: i. PPC1 and PPC2: Economic growth in the country
ii. PPC3: Economic recession in the country.
Lastly, changes in the number of population. The influences are also divided to two shifts which refer to, shifting to the right which means increasing in PPC and shifting to the left which means decreasing in PPC. For example is shown at below.
Assume: i. PPC1 and PPC2: Increasing in the country population.
ii. PPC3: Decreasing in the country population.
Monopoly is a type of market in which there is a seller and large number of buyers. It also refers to selling products that have no close substitution and have a high entry and exit barrier. There are example for this monopoly in Malaysia such as TNB and JBA.
There also characteristics for monopoly. The first one is one seller and large number of buyer which monopoly exist when there is only firm exist which selling a product which has no close substitute.
Next is no close substitution which monopoly firm would sell a product which has no close substitute. Then, restriction of entry of new firms which in monopoly market, there are strict barriers to the entry of new firm. Lastly, advertising in monopoly market depends on the types of product sold.
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