micro economics

• Economics


  The study of the allocation of scarce resources
• Need


  Any good or service that is required or necessary for survival
• Want


  Any good or service that is desired but not necessary
• Main economic groups


  • Consumers
  • Producers
  • Government
• Land


  • All natural physical resources
  • Reward is rent
• Labour


  • Human input into production
  • Reward is wages
• Capital


  • Goods used to produce other consumer goods and services in the future
  • Reward is interest
• Enterprise/Entrepreneurship


  • Individual who supplies products or services
  • Reward is profit
• Opportunity cost


  The cost of any possible alternative when making a choice
• Price acts as a signal to consumers who will compare the value of one product and service to another
• Factor market


  Market for factors of production (land, labour, capital, enterprise)
• Product market


  Market concentrating on the sale of the final product or service
• Product


  Physical objects or products that have been farmed, mined or created by a production process
• Service


  An activity of performing work for customers that provides satisfaction of their wants
• Price has three functions: rationing, signalling, and incentive
• The 5p charge on plastic bags in the UK was introduced to use price as a rationing function to reduce their overuse and environmental impact
• Product market


  A market concentrating on the sale of the final product or service
• Product market examples


  • Purchasing a burger at McDonald's or Burger King
  • Purchasing a fence panel at a DIY store or timber merchant
  • Purchasing a smartphone from a network provider, retailer, or phone manufacturer
• Product


  A physical object or product that has been farmed, mined or created by a production process
• At the end of a product transaction


  The ownership of the product passes from the seller to the buyer
• At the end of a service transaction


  The ownership of the service remains with its provider
• After a product transaction


  The product can be returned or exchanged
• After a service transaction


  The service cannot be returned
• Primary sector


  Any part of the economy involved with acquiring land economic resources (agriculture or mining)
• Secondary sector


  Any part of the economy involved with the manufacturing or assembly of products
• Tertiary sector


  Any part of the economy involved in the provision of services that support the primary and secondary sectors
• The tertiary sector has been the largest as a proportion of the total economy of the UK for many decades
• In the UK, the primary sector is 1%, the secondary sector is 19%, and the tertiary sector is 80%
• In Nepal, the primary sector is 32%, the secondary sector is 14%, and the tertiary sector is 54%
• In Poland, the primary sector is 3%, the secondary sector is 38%, and the tertiary sector is 59%
• Specialisation


  • An economy concentrates on the production of goods or provision of services at which it is the most efficient, and reduces the production of goods or provision of services where it is less efficient
• Specialisation examples


  • UK producing certain types of apples efficiently due to climate
  • UK being less efficient at producing energy to run large factories due to loss of coal reserves
• Regional specialisation example


  • West Midlands region of England specialising in car production
• Gains from specialisation


  • Higher output
  • Variety
  • Lower prices
• Division of labour


  • A firm separates its workforce so that many separate tasks are undertaken by specific individuals
• Exchange


  A method that allows economies and individuals to benefit from specialisation and division of labour
• Money


  The primary method of exchange that allows economies and individuals to benefit from specialisation and division of labour
• Formula One teams use many people to change the tyres in the middle of a race to take advantage of division of labour and specialisation
• Decrease in demand


  Illustrated by a leftward shift of the demand curve
• Main conditions of demand


  • Price of substitute goods
  • Price of complementary goods
  • Personal disposable income
  • Interest rates
  • Tastes and preferences
  • Population size