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Examining the world through Economic

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Introduction

TABLE OF CONTENT PG NO. TASK 1 2-3 TASK 2 4-7 TASK 3 8-10 TASK 4 11-12 TASK 5 13 TASK 1 a) A definition of economics that includes the problems of scarcity and choice. b) An explanation of what is meant by the concept of opportunity cost. c) An explanation of the difference between micro and macro economics? Economics can be described as a social science that involves the study of the production, distribution and consumption of goods and services. In a 1932 essay, Lionel Robbins, described economics as, "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Economics is a continuous expanding domain of the social sciences that aims at explaining how economies work and economic agents interact. Economic analyses are applicable throughout society, in fields as diverse as business, finance, education, politics, crimes, law etc. Economics revolves around scarcity. Things that are abundant are known as free goods and things that are scarce are known as economic goods. Economics concerns only economic goods. Scarcity exists because most resources are limited while peoples' wants are infinite. While priorities or desires vary every person, regardless of whether they are rich or poor, has wants and will continue to do so endlessly. ...read more.

Middle

Thus the pattern of the output is predictable. This is known as the Law of Diminishing Returns. The law states, 'if some inputs are increased whilst at least one other is fixed then whilst the extra output produced by each extra unit of input may at first increase, it will reach a point after which it will diminish'. This is known as the point of diminishing returns. Diminishing returns occur because each extra unit of input has less of the fixed input to work with. In other words, after a point, marginal output will decline. This is known as the point of diminishing marginal returns. A firm's output in the short run, will be at the point of optimum returns where each additional unit of input results in a greater or equal amount of output. In the long run, all of the factors of production are variable. Therefore, a firm can change all of its inputs proportionately. This results in a change in the firm's scale of production. There are three potentials outcomes when inputs are increased. If a percentage increase in input results in a proportionate increase in output, the firm is said to experience constant returns to scale. If the output increases less than proportionately, the firm is said to experience decreasing returns to scale. ...read more.

Conclusion

However, there are some requirements to be met for a firm to end up as a price taker. They are: 1. There are many buyers 2. There are many sellers. 3. The products are homogenous. 4. There are no barriers to entry. 5. There is perfect knowledge. Both buyers and sellers are completely informed about the products and the prices of each firm in the industry. Due to the facts that the products are identical, there are a large number of buyers and sellers and there are no barriers to entry, sellers have no control over the price of their product. As a result, all products in a perfect competition have a perfectly elastic demand curve, meaning that firms can sell as much of their product as they want at a certain price but nothing at changed price. The diagram above shows that all firms in a perfect competition are price takers, meaning that the price of the product is determined entirely by the market. Firms in a perfect competition are profit maximisers and therefore it is irrational for them to sell at a lower price. A market in perfect competition is likely to be both allocatively and technically efficient. Allocative efficiency occurs because suppliers are producing the optimal mix of goods and services required by the consumers. The consumer is sovereign. ...read more.

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