10th Grade

Foundations
Microeconomics

Week 2
1.1 The basic economic
problem

3
 Micro vs. Macro
Microeconomics Macroeconomics

Vs

is concerned with the behavior of is concerned with the overall

individual entities such as markets, performance of the economy.
firms and households.Micro looks Macro looks at totals or
at the "trees not the forest". aggregates to examine the "big
picture".
 The basic economic problem
Human wants are unlimited but resources are scarce
Unlimited wants > limited resources
 The Study of Economics
Economics
Economics-Social science concerned with the efficient use of limited resources to
achieve maximum satisfaction of economic wants.

Scarcity Choice

Scarcity is the condition in which our wants are In economics we will study the choices of
greater than our limited resources. individuals, firms, and governments.

Scarcity
Study of how individuals and societies deal with ________
 The importance of factors of production
Land Capital
All natural resources Man-made resources

Resourses Payment: 4 Factors of production Resourses Payment:

Rent Interest
in economy is anything that can be
used to produce a good or service.

Labor Enterpreneurship
A particular type of human
Human Resources
resource

Resources Payment: Resources Payment:

Wages and Salaries Profit
 Production
Using inputs (resources) to make outputs (goods and services) to
satisfy the needs and wants of consumers
 Consumption
Using up goods and services (products) to satisfy consumers’
needs and wants
 So, we all have to make choices
There is a limited amount of resources such as raw materials,
machines, factories and skilled workers. But there are a number
of different ways in which they can be used.

CHOIC CE
E C H OI

Resource allocation therefore involves deciding how best to use

scarce resources to satisfy as many needs and wants as possible
 Choice
Similarly, people and governments only have a limited amount of
money but have many needs and wants to satisfy

$100bn
$100

Food? Entertainment? Defence? Health care?

Clothing? Roads?
 Opportunity Cost

01 02
● Land
● Labour
● Unlimited Wants ● Capital
Choice? ● Enterpreneurship

Opportunity Cost: Economists deal with the problem of scarcity. the best
alternative forgone
 Opportunity Cost
Consumers Workers
preference for the jobs
Buy what available

Opportunity Cost

Producers Government
consider its expenditure of
decide what to make
tax revenue
 Economic goods & Free goods

Free Economic
goods goods

A product which does not Sunlight Air A product which requires For example?
require any resources to resources to produce it and
make it and so does not therefore has an
have an opportunity oppoutunity cost
cost.
 Opportunity cost
Opportunity cost is the cost of choice

• What would you buy with US$10?

• How should the government spend US$250 million?
(Or, should the government cut taxes by US$250 million?)
• What occupation will you choose when you finish your studies?
• How should a new business invest US$20 million?
• Should we conserve more natural resources?

… and what are the next best alternatives foregone?

 Production possibility curves
• A curve that shows the maximum output of two types of products and
combination of those products that can be produces with existing
resources and technology
1. The economic resources are being used to
produce the maximum amount of goods and
services.

2. Points outsides the curve represents

unattainable combination.

3. Points inside the curve may signal

unemployment or underemployment of labor
and other resources
 Production possibility curves
• Production possibility curves (PPCs) show the maximum
combined output of two or more products a firm or an entire
economy can produce with its available resources

A firm producing cars and trucks

What is the opportunity cost of
producing 20 more trucks?
 Production possibility curves

An economy producing
consumer goods and capital
goods
What is the opportunity cost of
producing 15 more tonnes of
consumer goods?
 Positive Statement & Normative Statement

01 02
Positive Statement Normative Statement
● Based on facts ●
Include value judgments
● Avoid Value Judgments How is Economics
● What ought to be
● What is used?
 Group Practice

● Classify each of the following

Let’s Practice