Microeconomics
SRI SULASMIYATI, S.SOS, M.AP
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Microeconomics
Scarcity ... the fundamental problem of economics
Resources are limited ... wants are not
White Sands, New Mexico in the1950s, during a water shortage
photo from National Park Service
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Microeconomics
If you could always get everything you
wanted, immediately and for free………
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Then you wouldn’t have to choose
Only say “More please”
But the real world isn’t like that
Scarcity of time, $, other resources makes CHOICE
necessary
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Microeconomics
Scarcity means that choices are
necessary.
When you can’t have all you want of everything, you must
make choices.
Microeconomics is the study of how to make the best
possible ( or the optimal) choice under the constraint of
limited resources.
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Microeconomics
Resources are limited; wants are unlimited
Scarcity = not enough resources to produce the goods to satisfy
our wants.
Resources: Adam Smith in his Wealth of Nations (1776)
divided resources into land, labor and capital.
http://www.adamsmith.org/smith/won-intro.htm
Adam Smith’s 3 resources: Land, Labor and Capital
1. LAND: used as shorthand for any natural resource,
not simply for agricultural land.
2. LABOR: manual power + skill ("human capital")
3. CAPITAL: produced means of production
for example, hammers, drill presses, computers ...
or even flint arrowheads of American Indians,
which Smith used as an example.
Although money is used to BUY all the above,
money is not itself a productive resource.
Capital grows through investment – and requires
foregoing current consumption. The Indian must take time
away from gathering berries to make the arrowheads.
Microeconomics
The study of how people make choices under conditions
of scarcity and of the results of those choices for society.
In a market system, allocation of resources occur via the
price system, incomes and preferences
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Microeconomics
The Difference
Microeconomics - is concerned with decision-making by
individual economic agents such as firms and consumers.
(Subject matter of this course)
Macroeconomics - is concerned with the aggregate
performance of the entire economic system. (Subject
matter of the following course)
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Microeconomics
Problems
1.
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3.
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What are goods and services should we produce?
How to produce those gooods and services?
For whom those goods and services are ?
Microeconomics
......Economics doesn’t
have to be difficult.....
The End
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Microeconomics