Master Microeconomics with Comprehensive Study Notes
Unlock the secrets of microeconomics with these meticulously crafted study notes, designed to elevate your understanding and boost your academic success. Whether you're a student striving for top grades or a professional looking to enhance you...
Definition: Economics is a wide-ranging discipline that is concerned with every aspect of human
existence.
-Economics is essentially about making decisions/choices.
-Economics study choices that people, businesses, government and other decision makers in the
society have to make on their everyday life.
But why are these choices necessary?
This brings us to the basic fact of economic life – scarcity.
Wants are plentiful (unlimited) but the means are scarce
Economics is applying scarce resources in order to satisfy wants.
Scarcity, choice, and opportunity cost
Differences between wants, needs, and demand.
1. Wants – are human desires for goods and services. They are unlimited.
2. Needs – are necessities (things that are essential for survival). They are not absolutely
unlimited.
3. Demands – are different from wants and needs. There is a demand for goods and services
(they are determined by the willingness to pay).
Why do we say the resources are limited?
There are 3 types of resources/ Factors of production.
1. Natural resources (such as Land)
2. Human resources (such as Labor)
3. Man-made resources (such as Machine)
This are the means with which goods and services are produced.
NB. Limited resources also leads to G&S also being limited.
, There are always costs involved when using resources and these costs are not always apparent to
the consumer of G&S.
The cost of the alternative that have been chosen can be measured in terms of the alternative
sacrificed. (This is called opportunity cost)
Definition: The opportunity cost of a choice is the value to the decision maker of the best
alternative that could have been chosen but was not chosen.
Opportunity cost capture the essence of the problems of scarcity and choice.
Illustrating scarcity, choice, and opportunity cost – The production possibilities curve
Production possibilities curve
Simplified ‘economy’
Two products are being produced
Limited resources are allocated
Possible combinations of the products
You have a choice in quantity, or only one
Definition: The PPC indicates the combinations of any two goods or services that are attainable
when the community’s resources are fully and efficiently employed.
Further applications of the production possibilities curve.
PPC -indicates the maximum attainable combinations of the two goods, also called potential
output.
What improves? How? what happened?
If an improved technique for producing capital goods is developed, it will be possible to
produce more capital goods with the available factors of production, and if an improved
technique for producing consumer’s goods is developed, it will be possible to produce
more consumer’s goods with the available factors of production.
If the amount of available resources (eg the number of workers) and the productivity of
the available resources increases, it will be possible to produce more consumer goods and
more capital goods than before.
Different types of G&S
1. Consumer goods – are goods that are consumed by individuals to satisfy wants.
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