Question one Part 1

Question one Part 1

MICROECONOMICS 7

Questionone

Part1

Scarcityrefers to the situation where the economic resources are limited, andthe needs and wants are infinite (Mudida, 2009). We are surrounded byscarcity in today’s life and therefore, one has to make the bestchoice to satisfy the needs and wants with the available resources.Our decisions are heavily affected by the scarcity of economicresources, and choices have to be made by individuals and firms also.Studying economics is important as it equips the learner with skillsof how to utilize the scarce resources to satisfy the unlimited needsand wants.

Timeis one of a valuable, scarce economic resource. If one has chosen todo something at a particular time, he/she has to forego some otheractivities. For example, I remember a day that I was to either go fora school trip or visit my relatives for a family get together whichwere both scheduled to happen in the same period. In this case, I hada tough experience of making the decision of which activity to attendto since both were much important to me but time could not allow meto take both.

Part2

Thetrade-offs normally influence the decision-making process. It impliesthat, by making a choice, one has to sacrifice something else inreturn. Since resources are finite while our wants are infinite, wewill always experience trade-offs in the economy. Some of theexamples of trade-offs that I have experienced at workplace includechoosing the employment scheme, that is, full time or part time,choosing the allowances benefit scheme among others.

Themost dominant factor of production seen at my working place islabour. Human labour is an essential factor of production and withoutit there would be no production at any firm. Labour also carries thehighest cost of production and therefore, it has a direct impact onthe profit of the organization (Mudida, 2009).

Part3

Forall the decisions that I have to make, what I normally consider isthe satisfaction of the needs and wants or the end results. In mostcases, I find myself relying on the information and experience that Igot from my friends. I ensured that I make an optimal allocation ofthe scarce resources to ensure that I have derived the best tosatisfy my needs and wants.

Part4

Consumersare the most determinants of what is to be produced. It is because,in all industries producers will only produce a particular product ifthere is a ready market, that is, the consumers. It is, therefore,unrealistic for producers to dictate what to produce. For example, ifa firm like LorealParis wants to introduce a new type lotion in theeconomy, the firm has to do market analysis and also produceprototypes to observe if the product is acceptable to the consumers.If it is not then the producer will not proceed to its production.

Questiontwo

Part1

Buyingbrand name product may sometimes be more expensive or even timeconsuming. Due to this reason, I do not always buy the brand nameproduct. Just like any other average consumer, I am always seeking toswitch to lower-price generic products. The fact that we are todayleaving in a society full of substitute products has increased ouralternatives hence preventing exploitation of the consumers. Forexample, if the price of brand cereal rises I would switch to therival substitute products as they serve the same purpose.

Part2

Thelaw of demand states that an increase in price causes demand toreduce and vice versa cetris peribus (Mudida, 2009). As a consumer, Ifeel that this law holds true. This is because when the price of aparticular product falls. The consumers will afford to buy in largequantity, and even others will switch from the rival products to thelow price product. For example, I remember one time when the price ofAlta Dena Dairy Milk had fallen up to $1, after few days later thecompany announced that it is running out of stock. Economists arguedthat the reduction of price has created shortage due to the increaseddemand that outweighed the supply, thus, supporting the law ofdemand. However, this law will never apply to the product that do nothave close substitutes or those products that their switching cost ishigh. Such products are said to have inelastic demand that is theyhave a low elasticity of demand.

Part3

Evenif consumers have some influence over the prices, producers remainthe major party in establishing the prices. Several firms competingin the same industry are nowadays trying to form cartels that arehelping them to speak in one voice especially when it comes to thepricing decisions. This togetherness has helped the producers toweaken the bargaining power of the consumers.

Part4

Thecoffee industry is one of the markets that I feel it needs pricecontrol. Coffee trade has been lacking price control since 1989 whenthe International Coffee Agreement (I.C.A) was dissolved. I also wishthat there were price controls in the electricity market since theconsumers are always been exploited by the monopolistic nature ofthis industry.

Questionthree

Part1

Innovationand creativity are what makes someone a successful entrepreneur.Entrepreneurs, therefore, have the following characteristics,innovative, self-motivated, risk takers, and decision makers. Inrecent years, some of the famous entrepreneurs include Larry ofGoogle, Bill Gates of Microsoft and many others.

Part2

Ido not think that most producers take their time to calculate AFC,AVC, ATC and MC. Instead, they consider total cost in general whilecalculating or predicting their profits. It is only a few large scaleproducers who take these concepts seriously in their production.

Part3

Implicitcosts are those costs incurred and cannot be easily traced in theproduction process (Mudida, 2009). This cost is also referred to asopportunity cost and is costs or actions associated with tradeoffs.Most producers tend to ignore this costs hence end up in overstatingtheir economic profits. Entrepreneur’s time is one of the implicitcost that business will need to consider.

Part4

Businessesoperating in a perfectly competitive market have no powers to dictatethe prices and, therefore, they take the price that is in theindustry. For example, a snack firm in the US cannot set its price ascustomers will switch to the rivals products. Such firms aretherefore regarded as price takers since they take the price in theindustry.

References

MudidaR. (2009). Introduction to modern economics, New York: Oxford Press.