Economics is a vast subject that deals with human behaviour and sustainably aims in the distribution of resources. Consumers can increase the way profit and welfare of society by maximizing satisfaction. Microeconomics is a part of this extensive subject which reads this way of human behaviour.
Students need to understand the basic concepts of microeconomics to differentiate between the factors affecting it. This section speaks about the way microeconomics is related to a nation’s economy in a broadway.
The Introduction to Microeconomics and its Fundamentals
The economic theory is applied to distinguish between real-life situations which are done following two concepts Macroeconomics and Microeconomics.
Here macro means large or big, which deals with the larger picture or a country. Macroeconomics is related to the economy and its problems like inflation, poverty, and other issues. It studies the aggregates and effect on the economy incomplete, which is total changes of process.
Microeconomics is related to the smaller region as it focuses on building smaller blocks of an economy. It deals with an individual unit like the demand for a product in a market. This concept is applied to a smaller level of the economy for a smooth flow of cash.
A good example will be a supply of products, the cost of an item, etc. These processes govern the microeconomics concepts and their function. Demand and supply are two essential factors that affect these two factors.
Basic Microeconomics Issues in an Economy
Every country’s economy faces problems relating to the scarcity of resources, which results in issues of the economy. A country’s economy has to decide the even distribution of limited resources. The problems that are usually seen in an economy are mentioned below.
What to Produce?
As resources are limited, the economy has to decide the alternative to deal with the issue. It decides on the process of distribution and allocation of resources. An economy plans on allocating resources towards the demand and thereby sacrifices other wants. There is always an option or alternative to deal with this concern. Here the ultimate goal is the maximum satisfaction of human beings.
It is essential to know that when one item is reduced than other goods increase. After deciding what to produce, and the economy has to choose the quantity to be made.
How to Produce?
An individual can employ various technologies to produce goods and services without errors. This includes choosing inputs in a combination of information. Ideally, two techniques can be implemented
Labour intensive technique – In this process, an individual uses more labour and limited capital.
Capital intensive technique – This manufacturing technique uses more capital and limited labour.
These techniques are used by the economy for manufacturing and are based on abundant input. It also implies more human power and labour imposed techniques. If more capital is provided, then the capital intensive approach can also be used in Microeconomics.
For Whom to Produce?
In this issue, an economy has to choose the masses for whom the goods and services have to be produced. Here the distribution of profits is the primary concern.
There are several factors and issues related to types of microeconomics. A student can gain information on these topics by referencing quality study materials. One can check educational sites like Vedantu that offers solutions and exercises for an assortment of services.
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FAQs on Introduction to Macroeconomics
1. What is the Opportunity Cost or the Cost of What’s Lost?
Ans. In microeconomics, an opportunity cost refers to the sacrifice made to select the next best alternative. It is the potential gain made when another option is ignored. When virtual spending is done, the following alternative available is left. In economics, this sort of opportunity is regarded as actual cost or spending when a choice is made.
A good example will be a student spending five hours and Rs.150 watching a movie before the exam day. This is a type of opportunity cost spent on studying as that amount is spent on something different.
2. What is a PPF Curve?
Ans. A production possibility frontier is a statistical representation of the various combination of items that can be produced. This product can be done by employing multiple technologies and quality resources. This also helps in deciding the best and practical combination of commodities available.
One can find many resources that can be put to various uses and allotted to manufacture goods and services. One can find multiple combinations of goods available in the market. This is the reason why an economist uses PPF to demonstrate basic types of goods available in the economy.
3. What Does the Slope of a PPC Represent?
Ans. The slope of PPC represents the ratio present in gain and loss of input which makes an appropriate statement. Here the slope moves downward, indicating that there is more amount of single good than the other alternate is lesser.
It can also reflect the marginal opportunity cost of a production possibility curve which is possible when one good is sacrificed. The formula to calculate marginal opportunity cost is done by dividing the sacrifice made by gain. This measure of sacrifice is in terms of income.