Micro Economics

Assupmtions



  1. Two products to choose from
  2. Fixed resources
  3. Fixed technology
  4. Full and efficient use of resources

Potatoes
0

20

40

60

80

100


Tomatoes
50

40

30

20

10

0




Production Possiblilities Frontier - a set of all efficient combinations of products with fixes resources


  * Any point on the frontier is technically efficient
  * "   " inside the frontier is attainable but inefficient
  * Any point outside the frontier ( to the right) is unattainable
  * Moving from an inefficient poiint to an efficient one
  * Moving between two efficient points ( on the mic frontier) will always have an opposite cost
The Opportunity cost of potatoes from F to A gain 20lbs of P then lose 10lbs of T
Opportunity Cost = What we lose    
                              What we gain



From F to B



    Opp Cost = 20/40 = 1/2



From E to G



    Opp Cost = 50/100 = 1/2



2/1









Economic Growth - Increase in total output



        Factors of Production (input)                           Input   -> Processs -> Output


  1. Land and Natural resources
  2. Labor, physical and mental human efforts
  3. Capital, things produced and are used in production
  4. Entrepreneur


Market - The arrangement or institution where buyers and sellers meet to trade





                                    Alice                                                                                                         Bob



Fish Coconuts Fish Coconuts
40

0



28


31



0

30



9


10


10

0



6


9


0

20



8


10




Gains of trade - +3               +1                                                                         +3                                   +3




2/3




2/6







Demand




Demand Schedule - Table showing the relationship between the price... [continues]

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