Economics



Table of Contents

TASK 013

Economics3

Concept of Opportunity Cost3

Increasing Opportunity Cost4

Scarcity and Choice6

Microeconomics and Macroeconomics7

TASK 029

Individual Demand Curves And Market Demand Curves Derived9

Firm Output Decision In Short Run10

Firm Output Decision In Long Run14

TASK 0318

Equilibrium Price And Equilibrium Quality18

Excess Supply21

Excess Demand23

Excess demand23

TASK 0425

Perfect Competition25

Oligopoly27

TASK 0529

Keynesian Economics29

Monetarist Economics29

References30

Economics

TASK 01

Economics

The study of how the forces of supply and demand allocate scarce resources. It is Subdivided into microeconomics, which examines the behavior of firms, consumers and the role of government; and macroeconomics, which looks at inflation, unemployment, industrial production, and the role of government(Aghion: Howitt: 2004: 21).

Concept of Opportunity Cost

One of the most commonly used principles in economics is opportunity cost. The opportunity cost of something is simply the highest valued alternative that must be foregone when a choice is made. (Baran: 2000: 19)In simple terms, opportunity cost of an action A is the next best alternative action B that you give up. For example, if you spend one hour in reading then you are actually giving up one hour of fishing which is say, your next best alternative use of that one hour.

Reading for an hour means giving up

So opportunity cost of reading is fishing.

Increasing Opportunity Cost

By studying the Production Possibility Frontier (PPF) one can understand the concept of trade-off or opportunity cost, which says that one has to give up something in order to get something(Basu: 2007: 19). For example, consider two goods being produced such as the Pizza with black olives and Pizza with green peppers. One can imagine that resources are prefectly substitutable between these two goods. As you give up one unit of Green pepper Pizza (at any point say, A, B or C) you gain exactly one unit of Black olive Pizza.

The Straightline PPF shows Constant Opportunity Cost.

However, in reality resources are mostly specialized and hence not perfectly shiftable between productions. At point A you give up one unit of bread, you get more than one unit of gun. At a point B, you give up one unit of bread you get one unit of gun. At a point C you give up one unit of bread but you get only half unit of gun.

The bowed out PPF shows Increasing Opportunity Cost.

Scarcity and Choice

Though scarcity cannot be completely eliminated, it can be partly alleviated. People's efforts to overcome scarcity gave rise to several scientific disciplines that analyze the consequences of the existence of scarcity for social life. The existence of scarcity implies, on the one hand, the necessity of choice. As resources are scarce, people have to choose which resources will be used to satisfy their distinct needs. The science of economics is designed specifically for this purpose—to analyze under which conditions the most urgent preferences of people will be satisfied, or in other words, under which social institutions prosperity will be produced and which will cause only waste of scarce resources and, ultimately, poverty.

On the other hand, scarcity of resources implies the possibility of conflict. With scarcity in place, two (or more) people may ...