Introduction to Microeconomics

What is economics?

It is the study of how people and organisations manage limited resources to meet their unlimited wants. ​ It looks at the issues that arise when the desires for consumption is greater than the available resources. ​ This is known as having infinite wants but finite resources.

Distinguish between macroeconomics and microeconomics

Microeconomics focuses on individual participants in the economy, while macroeconomics studies the overall economy, including inflation, employment, growth, income distribution, government spending, and money supply.

Distinguish between wants, needs and demand

Wants are our unlimited desires for goods and services, while needs are vital for survival like food, water, and shelter. Demand requires individuals to have both the desire and the purchasing power to buy a good or service.

Explain the economic problem of scarcity

Scarcity in the economy occurs from limited resources and unlimited wants, forcing individuals, businesses, and governments to make decisions about what, how, and who to produce for.

What is opportunity cost?

Opportunity cost is the loss of alternatives when one option is chosen. In other words, it's what you give up to choose something else. For example, if you spend time studying instead of working, the opportunity cost is the money you could have earned by working.

What are the 4 main categories of resources used to produce goods and services and indicated which are primary and secondary

Also known as Factors of Production.

1. Natural resources (Land, Minerals) - primary factors of production

2. Labour - primary factors of production

3. Capital - secondary factors

4. Entrepreneurship - secondary factors

What is Production Possibility Curve (PPC)?

Also known as the Production Possibility Frontier (PPF), shows the most that an economy can produce with a certain amount of resources. The curve represents all possible combinations of the two goods that can be produced efficiently.

1. Points on the curve indicate efficient production

2. Points inside the curve indicate inefficient use of resources

3. Points outside the curve are impossible to reach given the current resources

What is a normative statement?

Based on personal opinions and value judgments about how things should be, instead of factual observations. These statements cannot be tested or verified through empirical analysis (an evidence-based approach to the study and interpretation of information).

Explain the reasoning why opportunity costs increase along the production possibility frontier

Opportunity cost increases along the PPF when resources are allocated to producing additional units and resources are less efficient, causing sacrifice of the original good and potential revenue loss. On the PPF, this resulted in concave or bowed-out shape reflecting higher opportunity costs as the increase in production of one good is at the expense of the other.