Principles of Microeconomics

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Principles of Microeconomics

Chapter 1

1. Scarcity and the study of Microeconomics

Scarcity refers to the limited nature of resources as compared to the unlimited needs of the consumer. The resources available are not enough to meet all human needs and wants. The term is central to the study of microeconomics as these limited resources are the inputs of production necessary to provide goods and services for consumption and satisfying the needs of the consumer. These inputs of production are land, capital, labor, and entrepreneurship.

2. Efficiency and Equity

Efficiency refers to the optimal use of limited resources to yield the greatest possible output. This means allocation of resources where they are most likely to yield the most. Equality however, refers to the shared distribution of the resources available to the people. The government is faced with tradeoffs because more often to increase efficiency could mean to compromise equality. For resources to be distributed equally it also means compromising the chances of having them placed where they are going to be used efficiently.

Chapter 2

1. Absolute and Comparative Advantage

A country is said to have comparative advantage when it is able to produce a product more efficiently than other countries. That is, it can be considered to have the best resources for the production of the good. A country with comparative advantage is one that is able to produce a good at a lower opportunity cost or is able to do so at a lower cost. Comparative cost however does not mean that the good best produced.

2. Michigan has greater comparative advantage over Colorado in the production of Blueberries. Michigan is able to produce 800lbs per day while Colorado is only able to produce 35lbs. This means that Michigan produces 22.86 times more blueberries than Colorado but only 1.14 times more barley. Therefore, Michigan has comparative advantage in the production of blueberries in comparison to its opportunity cost, barley.