Microeconomics Introduction Chapter

Central Problems of an Economy

• The distribution of National Income is one of the central problems of an economy, which deals with the question "For whom to produce?"
• Other central problems include "What to produce?" and "How to produce?"

Features of Resources

• Resources in an economy have limited supply
• Resources have alternative uses

Scarcity and Choice

• Scarcity requires people to make choices
• Scarcity is the fundamental economic problem

Opportunity Cost

• Opportunity cost is the value of the next best alternative that is given up when a choice is made
• Example: The opportunity cost of watching a movie is the pleasure that could have been enjoyed watching TV instead

Economy

• An economy is a system of arrangement of all economic activities
• An economy is comprised of all the regions of a country

Types of Economies

• A market economy is an economy where all economic activities are organized through the market
• A centrally planned economy is an economy where all economic activities are organized through a central authority

Definition of Economics

• Economics is the study of the problem of choice under scarcity

Human Wants

• Human wants are unlimited and recurring
• Human wants are not limited

Microeconomics and Macroeconomics

• Microeconomics is concerned with the behavior of individual units such as consumers and firms
• Macroeconomics deals with economic aggregates, such as national income and inflation rate

Economic Problems

• The reasons for economic problems include scarcity of resources, alternative uses of resources, and unlimited human wants
• There is no way to solve economic problems once and for all, as they are inherent to the human condition

Interaction between Micro and Macro Economics

• Macroeconomics depends on microeconomics, as the total output of an economy is the sum of the total output of individual producers

Types of Economic Systems

• There are three types of economic systems: Market Economy, Planned Economy, and Mixed Economy

Assess your understanding of the fundamental concepts of microeconomics, including central problems and resource features. Test your knowledge of scarcity and economic decisions.