Microeconomics

Four Principles

Scarcity L, Lb, K

Opportunity Cost

Marginal Decision

People are rational

Economic systems

Command economy

Government decides price of produce = communist government

benefits = social solidarity, great security for people

cons = lack of individual freedom, risk of exploitation of workers

Free market economy

Low government interference US/EU

benefits = self interest, prices & market, private property

Cons = can be socially irresponsible, private wealth at expense of others

Production Possibility Frontier/Curve

All points ON the curve are efficient

All points outside the curve are unattainable

Going point to point = opportunity costs

Demand Curve

Free Trade

reduces conflict, encourages efficient production & entrepreneurship, greater choice for consumers, creates unemployment

Protectionism aims to restrict and limit free trade with countries to protect home producers from foreign suppliers

Free Trade V Protectionism

Over dependence on specific output, undermine local culture, dumping.

Increase in Demand shifts curve to the RIGHT, decrease = LEFT

Price P, Substitute Ps, Comp Pc, Income y, Taste t, Advertising A, Population pop