Week-1: Introduction to Microeconomics

what is the basic economic problem?

how to allocate resources to satisfy the ulimited wants of socitey given the limited resources

what are the 3 questions that arrise from the basic economic problem?

→ what to produce

→ how to produce

→ from whom to produce

what are incentives and what do they do?

incentives are generated within an economic system to influence decision making -

what are the different types of resoured used to produce goods and services? (4)

→ natural

→ physical

→ human

→ time

what is the net benefit formula? what is it used for?

net benefit = total benefits - total costs

used for decison making to provide an optimal decision that will maximise net benefit

define oppourtunity cost

Opportunity cost is the value of the next best alternative that is forgone when a choice is made.

It represents the benefits that could have been gained by choosing that alternative instead.

what is the difference between absolute and comparitive advantage?

absolute adv is when a production method can produce mroe goods in a given amount of time

while comparitive adv comapres the opportunity costs of producing different goods between two entities, highlighting which has a lower opportunity cost in producing a good.

what is usually the better advantage to look at when making a decision?

comparitivr adv

this satisfies both users while prodiving maximal benefits, making it the most rational decision

what are sunk costs? and how are they treated?

they are costs that may alreayd have been incurred and cannot be recovered.

they are not included in the oppourtunity cost as they have already been incurred.

what is marginal benefit?

increment in total benefits by taking an action or increasing level of activity by one unit

what is marginal costs?

increment in total costs by taking an action or by increasing the level of activity by one unit

what are the two different ways to calculate the decision providing the most net benefit?

→ drawing a table with each different increment and comparing the net benefits with each previous option

→ can differentiate NB(x) with respect to x.. MB(x)-MC(x) =o

when MB(x)> MC(x), NB will be rising

when MB(x) <MC(x), NB will be falling