Introduction to Study of Micro Economics – Some Basic Concepts

Resource

Production involves bringing together certain inputs – called factors of production or resources- to create goods and services i.e., the output. Resources are the ingredients necessary for producing goods and services, just as you cannot bake a cake without ingredients of flour, eggs, sugar, and so on. It is these resources that are scare and, in turn, cause goods and services that are produced with them to be scarce.

Nature is the only source of all kind of primary resources. The primary resources can be termed as ‘natural recourse‘.

Scarcity

All the natural resources are not abundant. This term ‘Not abundant’ is called ‘scarcity’ in the terminology of economics that simply refers to limited supply of specific kind of natural resource. Scarcity or limited supply configures a natural resource as an economic resource.  So more specifically, Scarcity means not having sufficient resources to produce enough goods or services to fulfill unlimited subjective wants. Alternatively, scarcity implies that not all of society’s goals can be attained at the same time, so that we must make trade-off one good against others.

“Resources scarcity” is defined as a difference between availability of certain resource in certain period of time and the amount people desire of (or the demand for) that resource. Thus, a good is scarce if people would consume more of it, if it were free.

Scarcity can also be viewed as the difference between a person’s or society’s desire and his possession.

Opportunity Cost

Many see the concept of opportunity cost as one of the very few profound “eternal truths of economics,” which is a result of the universal nature of scarcity as the central economic problem.

Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative. For example, if a city authority decides to build a hospital on a vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has foregone the opportunity to build a training center on that land, or a parking lot, or the ability to sell the land to reduce the city’s debt, and so on. Opportunity cost need not be assessed in monetary terms, but rather, is assessed in terms of anything that is of value to the person or persons doing the assessment. The consideration of opportunity costs is one of the key differences between the concepts of economic cost and accounting cost.

(Visited 5 times, 1 visits today)

Leave a Reply