1.

Explain the following:

a. The law of scarcity

 The Law of Scarcity simply states:
If what we desire “appears” to be in limited supply, the perception of its
value increases significantly.

 The scarcity principle is an economic theory that explains the price

relationship between dynamic supply and demand. According to the scarcity
principle, the price of a good, which has low supply and high demand, rises to
meet the expected demand. Marketers often use the principle to create
artificial scarcity for a given product or good—and make it exclusive—in order
to generate demand for it.

b. Explicit costs, implicit costs

 Explicit costs also known as accounting costs are normal business costs that
appear in the general ledger and directly affect a company's profitability.
Explicit costs are easy to identify, record, and audit because of their paper trail.
Expenses relating to advertising, supplies, utilities, inventory, and purchased
equipment are examples of explicit costs.

 Implicit cost is a cost that exists without the exchange of cash and is not
recorded for accounting purposes. Implicit costs represent the loss of income
but do not represent a loss of profit. These costs are in contrast to explicit
costs, which represent money exchanged or the use of tangible resources by a
company. Examples of implicit costs include a small business owner who may
forgo a salary in the early stages of operations to increase revenue.

c. Total product, average product, marginal product

 Total product is the total volume or amount of final output produced by a firm
using given inputs in a given period of time.

 Average product is defined as the output per unit of factor inputs or the
average of the total product per unit of input and can be calculated by dividing
the Total Product by the inputs (variable factors).

 Marginal product the additional output produced as a result of employing an

additional unit of the variable factor. Marginal product is the addition to Total
Product when an extra factor input is used.

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 d. The law of marginal returns
 It is a theory in economics that predicts that after some optimal level of
capacity is reached, adding an additional factor of production will actually
result in smaller increases in output.It is related to the concept of diminishing
marginal utility. It can also be contrasted with economies of scale.

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