Micro Economics

Economics

Part 1- Microeconomics

What is economics: the number of goods and services that an economy can produce is determined by the resources that it has available. These resources can include: land- this resources are difficult to increase unless there is a new discovery of a resources such as oil. Labour- the number of people willing and able to work in an economy and the skills they have The size of this varies due to immigration or factors such as changes in the retirement age. Capital- this is the quality and quantity of equipment in an economy e.g. offices.

Entrepreneurship- ability for managers to come up with new ideas and to manage people effectively, however, the political, legal and economic environment in the economy has an impact on this.

The quality and quantity of these resources can vary e.g. some countries have bigger population or some have natural resources. However, there is a limit to what can be reduced with a given number of people, machines, resources and ideas this limits the output that can be produced. Within an economy the scarcity of resources means that choices have to be made regarding how these limited resources are best used.

Three questions are asked due to the limited resources an economy has: What/How/whom to produce? Solving these questions-By letting the government taking full control over the decisions of resources, this has happened in North Korea, Cuba and china. A different outlook would be to leave it to the free market forces, meaning government doesn’t get involved and all decisions are made by private firms. There the decisions are inked to rewards than government policies. This helps to avoid cumbersome central planning systems. As well as each firm purses its own objectives. In a free market it encourages competition and to develop new services to meet customer needs by giving them more choice. However, there are some disadvantages of a free market such as some goods/services may not be produced as there is seen to be no or little profit. In a free market products are available only if the consumer can afford them. If a product is seen as profitable there is a risk of labour being exploited and the production of unsafe goods.

Opportunity costs- (next-best alternative)

Mixed economy- all economies are combined with both free market and completely planning (government control) In a mixed economy some goods and services are provided by the government e.g. NHS etc. Other products and services are provided by private firms e.g. trainers, laptops etc. However, to what extent should the government intervene and in what area e.g. transport or energy etc. As time goes on government has been taken out of control companies such as British gas have been sold to private firms. In other sectors government has not sold off organisations but has removed restrictions to allow for more firms to compete.

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