Maria Domenica Taieb

Principles of microeconomics E01

June 9th, 2020

A. Economics is the social science responsible for studying those social relationships that

are involved in the processes of production, exchange and subsequent consumption of

goods and services. The objective of the economy is to provide rational criteria for

making the allocation of resources, many of them with limited life such as oil, due to

its efficiency for sustainable development.

Chapter one also talks about the “division of labor and why to increase production”.

The division of labor consists of the fragmentation of a productive activity in its most

elementary tasks and its distribution among different people, according to their

physical strength, skill, and knowledge. It is important because it increase workers’

skills as well as allow people to take care of those activities in which they are good

and do not waste time and effort doing other activities that other people could do

better.

The book also talks about “the three ways society organizes an economy”. traditional

economy is when traditions guide economic decisions, such as production, and

distribution. Traditional economies depend on agriculture, fishing, and hunting. A

command economy is a method of determining what, how and for whom goods and

services will be produced, by using a hierarchical organizational structure in which

people obey instructions given to them. Mix economy is the one in which some means of

production are privately owned and others publicly owned. is an economy in which the

allocation of resources and the level of activity is decided by individuals, companies,

cooperatives, public corporations and authorities that react, create or control market

opportunities

Finally, Economic models are used by economists to communicate current economic

conditions for the causes and effects on the future of the economy. To predict economic

activities in which they are assumption-based conclusions and to prescribe new economic

guidelines that will change future economic behaviors.

Chapter 2 talks about opportunity cost, sunk cost, and production possibilities frontier.

Opportunity cost refers to a benefit that a person might have received, but to which he

resigned, to take another course of action. The opportunity cost is very important in

everyday life as in determining the capital structure of a company. Sunk costs are those

costs that have already been incurred and cannot be recovered in the future. They include

time, money, or other resources that were spent on a project, investment, or other

activities that cannot be recovered. Chapter two mentions that “A production

possibilities frontier defines the set of choices society faces for the combinations of goods

and services it can produce given the resources available” Chapter 2 (page 41), this

means that the production possibilities frontier exhibits the maximum amounts of

production that an economy can achieve. Always considering technological availability

and the number of factors in existence, which represents the menu of options available to

a society.

B. sunk cost is those costs that have been issued and cannot be recovered in the future.

One of the best ways to describe costs of this type are time because time is one of the

variables that cannot be recovered. On the other hand, money and other resources

spent on a project, on an investment or other activity that cannot be recovered.

I believe an example of sunk cost could be a company launched a new product and the

board decided to spend $50,000 on marketing and advertising to promote its new product;

However, they have not been successful in this marketing campaign as the efficiency of

the product was not up to the task and the cost of marketing would be considered a sunk

cost.

Opportunity cost is especially important in companies, as they must make decisions on a

demanding basis in a demanding environment every day, offering multiple possibilities

and alternatives. Each option brings with it advantages and disadvantages, which need to

be thoroughly evaluated to decide which offers a lower opportunity cost. I think that in

the globalized and competitive economy that we have today, changes can happen very

fast. Conditions can change quickly and abruptly in a matter of hours or even minutes.

Under these conditions it is difficult to make one decision or another, that is why when

choosing we must consider every element necessary for good decision-making.

An example of opportunity cost might be when I have two options between walking to

work or taking the taxi, I would decide to walk as it not only saves me money but it is

also a good exercise; however, if I decide to take the taxi it would save time but for me,

my priority would be saving money.

Command economy is an economy of determining what, how and for whom goods and

services will be produced, by using a hierarchical organizational structure in which

people obey instructions given to them. in my opinion this economy is characterized as it

is possible to adjust the rate of production and the availability of finished products to

meet the demands of the population. although selection may not be as varied as in other
types of economies, this means that the possibility of scarcity resulting in the

accumulation of unwanted goods in warehouses is kept to a minimum.

Communism is a great example because the government mainly controls the economy,

the government tells you what to produce, how to produce it and to who sell it to.

Globalization

It is a growing process of industrial and trade internationalization, driven by the free flow

of goods and capital, which has scaled exponentially with the use of technology.

For me, this process has also affected politics. The notion that nations are not alone in the

world has caused certain global decisions to be made in consensus among all countries,

through designated organizations such as UN and IMF. globalization has made global

trade and services grow very fast, as well as Promotes job creation and incentivizes the

economy of the countries involved.

Traditional economy as the books says “economies organize their economic affairs the

way they have always done” chapter 1 page ,,, the book states that this kind of economy

has little progress or development; however, may have advantages in that people feel safe

because their functions are well defined, giving them psychological stability. Food

production is designed to meet demand, but food surpluses are never lost and used for

trade.

C. this article highlights the importance of the division of labor during covid-19. The

article emphasizes that without the division of labor humanity would not have been

able to emerge in such a successful way as it is today. the author gives us an example

about einstein. He mentions that "Without the division of labor, however, his musings
would have been exclusively directed toward next year’s crop yield, as opposed to

science". this means that if he would have chosen to do something different than being

a scientist he probably would have completely failed at it, but with the help of the

division of labor every person has a specific task in which they are very efficiant at it

and make the job go smoother and faster. According to the author, this process is

important because to even create a pencil, there are certain requirements and

procedures that must be carried out before the final product is ready. Economy is very

important and this applies in the times during the pandemic because without the

division of labor it would have been much more difficult to be able to lead a daily life

and without the specialization of work of each person we would have not been able to

obtain the goods and services that we are depending on today.

(Rich, Without Division of Labor, There’s No Way We Could Make It through

COVID-19, april, 2020)

This article talks about the importance of knowing the concept of scarcity. as well as

understanding the price system. the author highlights what happened with the

cheesecake factory company. "To celebrate its 40th anniversary, in November

Cheesecake Factory announced it was giving away 40,000 pieces of cheesecake to

customers who used the DoorDash app to place orders". the company overlooked the

concept of scarcity, because having a certain amount of limited cheesecake and not

putting a price on the product, will increase the demand by reducing the supply given

that many consumers did not have access to the product and those who had access to

it, did not receive the product due to delivery issues. the author also talks about how
 important the price is in the economy. people depend on the information that prices

give them to understand market signals, Prices play a critical role in making the

market functions. For this reason, it is important to let the market dictate with a

minimum of external interference the price that a product must-have.

(Miltimore, Cheesecake Factory’s Free Cheesecake Disaster Is a Lesson in Scarcity

and Prices, february, 2019)

D. Opportunity cost is important in the economy as it is in personal life because it affects

directly to both. We always analyze our decisions with the aim of obtaining the

greatest equity or personal benefit. Determining exactly which option or options will

maximize utility or profitability is a complex process, both at the business level and

for us as citizens. The choice of a possible alternative also depends on many factors,

but in most cases, it will have an impact on our day to day or that of a company. For

this reason, knowing how to choose the opportunity cost correctly is very important.

Globalization is important in microeconomics as it facilitates the ability to solve

economics needs that local factors have failed to meet. Globalization facilitates

financial transactions and expands businesses that were constrained by the domestic

market into distant markets and emerging markets.