Unit 1 - Introduction to Microeconomics

What is economics? what are the scopes of economics

• Economics is the science of studying the effective use of limited resources with multiple alternative uses to satisfy many needs 

• It looks at how we use scarce resources to fulfill unlimited wants 

• Microeconomics looks at the application of economics on an individual level. Helps us understand how markets work 

• Macroeconomics looks at the application of economics to the whole economy and international economies. It looks into GDP, inflation, unemployment, and economic growth 

What is the problem of scarcity?

• Limited resources means that there are not enough goods or services that satisfy our wants and needs. The amounts of goods or services produced are also limited. 

• Our choices are forced, as scarcity governs our lives, we cannot have everything. These goods and services are not for free, they come with a price. 

What are the factors of production?

• Natural resources (land) 

• These are things such as raw materials, land, water, coal, flora and fauna, even our climate. the payment for this is rent.

• Labor 

• Human resources refer to the effort of people either intellectually or physically. The payment for labor is wages. 

• Capital 

• This is man-made resources that was made from natural resources (tools, trucks, buildings). The payment for capital is interest 

• Entrepreneurship 

• Is the driving force behind production and combines other resources to produce another product 

Explain what opportunity cost is

• Is the value of the next best option that must be sacrificed when you make a choice (e.g., if you have a free afternoon you can choose to either play or study, if you choose to play the opportunity cost is the benefit you would have had, if you had studied) 

• We make choices on an individual level, but also as a firm and as a government 

What is the production possibility curve (PPC)?

• It shows the different combinations of two goods a society can produce with using resources and best technologies 

• The curve also shows how much of one product must be given up to release/produce another product 

Economic growth

• Means that there has been an increase in goods a country has been producing over time. On the PPE curve its a shift to the right. 

• Tech advancements make all sectors more productive and efficient 

• Labor force grows as a result of immigration and population growth 

• Capital goods increase 

Economic decline

• Means a reduction in the goods a country has been producing over time. It will shift the curve inward (to left) on the PPE curve. This is usually the result of war or sanctions. 

• War causes economic decline because capital goods are usually destroyed (roads, bridges etc.) 

• Natural disasters also puts a reduce on economy output 

• Sanctions block off international trade