Microeconomics1

MicroeconomicsSRI SULASMIYATI, S.SOS, M.AP

Microeconomics2

Scarcity ... the fundamental problem of economics

White Sands, New Mexico in the1950s, during a water shortagephoto from National Park Service

Resources are limited ... wants are not

Microeconomics

If you could always get everything you wanted, immediately and for free………

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Then you wouldn’t have to choose Only say “More please” But the real world isn’t like that Scarcity of time, $, other resources

makes CHOICE necessary

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Scarcity means that choices are necessary.When you can’t have all you want of

everything, you must make choices.

Microeconomics is the study of how to make the best possible ( or the optimal) choice under the constraint of limited resources.

Resources are limited; wants are unlimited

Scarcity = not enough resources to produce the goods to satisfy our wants.

Resources: Adam Smith in his Wealth of Nations (1776) divided resources into land, labor and capital.

http://www.adamsmith.org/smith/won-intro.htm

Adam Smith’s 3 resources: Land, Labor and Capital

1. LAND: used as shorthand for any natural resource,not simply for agricultural land.

2. LABOR: manual power + skill ("human capital")

3. CAPITAL: produced means of production for example, hammers, drill presses, computers ...

or even flint arrowheads of American Indians, which Smith used as an example.

Although money is used to BUY all the above, money is not itself a productive resource.

Capital grows through investment – and requires foregoing current consumption. The Indian must take time away from gathering berries to make the arrowheads.

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Microeconomics The study of how people make choices under

conditions of scarcity and of the results of those choices for society.

In a market system, allocation of resources occur via the price system, incomes and preferences

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The Difference Microeconomics - is concerned with decision-

making by individual economic agents such as firms and consumers. (Subject matter of this course)

Macroeconomics - is concerned with the aggregate performance of the entire economic system. (Subject matter of the following course)

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Problems1. What are goods and services should we

produce?2. How to produce those gooods and services?3. For whom those goods and services are ?

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......Economics doesn’t have to be

difficult.....

The End