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Microeconomics Concepts and Resources Guide

This document provides an overview of key concepts in microeconomics and macroeconomics. It distinguishes between socialism and capitalism, microeconomics and macroeconomics, and positive and normative economics. It lists the four factors of production as labor, capital, land, and entrepreneurship. It defines scarcity and opportunity cost, technology and the production possibility frontier. It differentiates between a straight-line and bowed-outward production possibilities frontier. Finally, it describes how an investment in new technology and resources by a company would shift its production possibility frontier outward.

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Lee Hui Ying李慧莹
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214 views2 pages

Microeconomics Concepts and Resources Guide

This document provides an overview of key concepts in microeconomics and macroeconomics. It distinguishes between socialism and capitalism, microeconomics and macroeconomics, and positive and normative economics. It lists the four factors of production as labor, capital, land, and entrepreneurship. It defines scarcity and opportunity cost, technology and the production possibility frontier. It differentiates between a straight-line and bowed-outward production possibilities frontier. Finally, it describes how an investment in new technology and resources by a company would shift its production possibility frontier outward.

Uploaded by

Lee Hui Ying李慧莹
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

BBBE 1033 ECONOMICS

MICROECONOMICS
TUTORIAL 1

1. Distinguish between:
i) Socialism and capitalism.
Socialism refers to the way in which the government decides to answer key economics questions, in
particular those questions such as what to produce, how to produce and when to produce, that relate to
production and trade.
Capitalism refers to the way in which the market decides to answer key economics questions, in particular
those questions such as what to produce, how to produce and when to produce, that relate to production
and trade.

ii) Microeconomics and Macroeconomics.


Microeconomics deals with human behavior and choices as they relate to relatively small units, such as an
individual, a business firm and others.
Macroeconomics deals with highly aggregate markets or the entire economy.

iii) Positive economics and normative economics. ** (12 marks)


Positive economics refers to the study of “what is” in economic matters, it deals with cause-effect
relationships that can be tested.
Normative economics refers to the study of “what should be” in economics matters, it deals with value
judgements and opinions that cannot be tested.

2. With examples, describe the FOUR (4) resources used to produce goods and services.
(8 marks)
The resources used to produce goods and services, including labor, capital, land and entrepreneurship.
● Labor is who provides the physical and mental talents to the production, such as teachers
teaching, chefs cooking and others.
● Capital refers to producing goods that can be used as inputs for further production such as
computers, factories and others.
● All natural resources from land, such as gold, forests and others.
● Entrepreneurship refers to some people having a particular talent, organizing the resources,
seeking for new business opportunities and developing new ways of doing things such as
successful businessmen.

3. Explain the following concepts:


(i) With an appropriate example, explain the concept of ‘scarcity’. (3 marks)
The concept of scarcity is under the condition in which our wants are greater than the limited resources
available to satisfy those wants. And, the rationing device is the effect of scarcity. For example, we have a
limited salary so many needs and wants need to be forfeited.
(ii) With an appropriate example, explain the concept of ‘opportunity cost’. (3 marks)
The concept of opportunity cost refers to the things we gave up once we made choices. For instance, we
gave up enjoying the entertainment since economics tutorial class that started at 2pm to 4pm.

4. Define the term “an advance in technology”. (2


Using a diagram (2, describe the effect of an advance in technology on the production
possibility frontier.(2 (6 marks)

The term “an advance in technology” refers to the ability to produce more output with a fixed amount of
resources or the ability to produce the same output with fewer resources.

5. Differentiate between a straight-line and a bowed-outward production possibilities


Frontier (PPF). (4 marks)

Straight-line PPF Bowed-outward PPF

Constant opportunity cost Increasing opportunities cost


- Give up the same amount of good to - give up the increasing amount of good to produce
produce the additional of another good the additional of another good

6. Presently, Century Products Manufacturing Sdn. Bhd. has maximised the production of
its range of products with its present technology and resources. Recently, a decision was
made to invest RM20 million in new technology and resources.
Using an appropriate diagram, describe the future effect of the above decision on the
production possibility frontier (PPF) of the company. (5 marks)

The future effect of the above decision on the production possibility frontier (PPF) of the company is
advance in technology. It can increase in productivity to expand goods 1 and goods 2, shifting the ppf
curve outwards. The second effect is an increase in resources. It can increase in capacity to buy more
resources to produce more output, shifting the curve to outwards.

Common questions

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The investment in new technology and resources should improve productivity and capacity, enabling the company to produce more goods. This would shift the PPF outward, reflecting increased production potential .

An advance in technology affects the PPF by allowing more output with the same resources or the same output with fewer resources, shifting the PPF outward. This signifies an increase in economic productivity and potential growth .

The constant opportunity cost is depicted by a straight-line PPF, where the amount of one good given up to produce another remains constant. An increasing opportunity cost is shown by a bowed-outward PPF, where more of one good must be given up to increase production of another .

The concept of scarcity refers to the situation where human wants exceed the limited resources available. An example is a limited salary, which forces choices between fulfilling various needs and wants .

Socialism approaches the basic economic questions—what to produce, how to produce, and when to produce—by decisions made by the government. In contrast, capitalism relies on market dynamics to determine these economic questions .

Opportunity cost represents the benefits of the next best alternative that must be forgone. For instance, choosing to attend an economics tutorial over entertainment represents the opportunity cost of the entertainment foregone .

Microeconomics focuses on human behavior and choices related to individual or small units, such as an individual or a business firm. Macroeconomics, however, deals with aggregate markets and the economy as a whole .

The four resources are labor (physical and mental talents, e.g. teaching), capital (goods used for further production, e.g. factories), land (natural resources, e.g. forests), and entrepreneurship (organizing resources, e.g. innovation).

A straight-line PPF indicates constant opportunity cost, meaning the trade-off between two goods is uniform. A bowed-outward PPF shows increasing opportunity costs, highlighting a rising trade-off as more of one good is produced .

Positive economics examines 'what is' in economic matters, involving cause-effect relationships that can be tested. Meanwhile, normative economics focuses on 'what should be', driven by value judgments and opinions without testable hypotheses .

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