Consumers, Firms and Techniques of Production - making economic choices.

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Consumers, Firms and Techniques of Production

Economics focuses on choices and following consequences, as well as how individuals and the societies try to satisfy human’s infinite needs and wants because the resources available to meet them are scarce, is say, choices are inevitable (Marks, 2012). According to Anderton (2008), resources which are scarce are called economic goods. However, not all resources are scarce. Those resources are called free goods. For example, the air we breathe Economics is known as a combination of microeconomics and macroeconomics. In this essay, the topic is a discussion focuses on consumers, firms and techniques of production bases on microeconomics.  

Scarcity – the basic economic problem – can be dealt with three simple questions: what goods should be produced, how goods should be produced, and for whom will those goods be produced (Sloman, 2006)? There are three types of economic system differ in what their solutions to these three basic economic problems. They are free market, planned market, and mixed market. Once one choice has been considered will be the ‘best’ one and take it, all the other choices will have to be given up. The benefit lost from that missed next ‘best’ choice is called the opportunity cost (Anderton, 2008). For instance, you may have enough money to buy one of your favourite magazines – magazaine A or magazine B. If you make a decision to buy magazine B, its opportunity cost will then be the benefit which would have been gained from having magazine A, and vice versa.

As stated by Rubinfeld & Pindyck (2009), individual economic units could be divided into two groups by function accordingly – buyers and sellers. Buyers include consumers and sellers include firms. As a result, those two broad groups – buyers and sellers – influence and condition each other to generate markets, simply speaking; market is the interaction between buyers and sellers. One question to ask yourself, in a consumer’s view, for what reason that let you pay something. As its answer, Threadgould & Meachen (2008) declared that, ‘consumers aim to maximise utility, the name economists use for pleasure or happiness’, that is, satisfaction or their own economic welfare. What's more, not every consumer has enough money to be able to buy every goods or services that they want. In order to achieve a ‘best’ beneficial choice they have to allocate their limited resources. Accordingly, if you are able to afford something, for example, would you prefer to change to a luxury house, or spend money on living in a 6-star hotel, or travel abroad? Whatsoever, decisions are made at the margin (Anderton, 2008). It is unlikely that consumers calculate their total spending every time when they would like to spend an extra unit of product with its opportunity cost. They only do care about if they are going to gain the highest economic welfare with that extra unit of product before they think about spending an extra unit of product on the alternatives of that decision. Nevertheless, it is the way consumer attempt to maximise their total surplus.

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Sloman (2006) states, over a given period of time, resources are scarce, there is a limit to the amount of goods that can be made, and this can be shown using a graph (Figure 1) as followed:

Figure 1. The production possibility frontier

The curved line is called the production possibility frontier (PPF), other name for it includes production possibility curve. A PPF shows the maximum number of products that can be produced in an economy given its current level of resources (Anderton, 2008). Use apples and oranges as an example of production possibility, shown in Figure 2. Land ...

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