Some important concepts in a level microeconomics


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This will help you understand how to approach microeconomics for A Levels

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Some important concepts in a level microeconomics

  1. 1. Some Important Concepts in A level Microeconomics Colin Ong Tau Shien
  2. 2. Scarcity <ul><li>Economics is the study of how we have to maximise our scarce resource to ensure we get maximum satisfaction. </li></ul>
  3. 3. Opportunity Cost <ul><li>Scarcity forces us to accept that our final decision will lead us to reflect about the “What-Ifs”? </li></ul>
  4. 4. Static / Dynamic <ul><li>In our analysis we normally assume a static equilibrium but in the long run, the variables may be dynamic to reach equilibrium. </li></ul>
  5. 5. Price <ul><li>Economists assume that using price is the best indicator that will bring the demand and supply functions together to create an equilibrium output and price. </li></ul>
  6. 6. Elasticity <ul><li>The elasticity forces the student to focus in the effects of how a small change in a variable will result a corresponding change in another variable. </li></ul><ul><li>For A Level’s this representation is normally shown on a X-Y axis. </li></ul><ul><li>An example is the law of demand. </li></ul>
  7. 7. Short run / Long run <ul><li>An example of the importance of the terms short run and long run in microeconomics is when we differentiate between the Law of Diminishing Returns (SR) and Law of Diminishing Return to Scale. </li></ul>
  8. 8. Efficiency and Equity <ul><li>Sometimes that most effective production procedure will lead its product being distributed to consumers who may not necessarily find the highest satisfaction at this point in time. </li></ul>
  9. 9. Profit Maximisation <ul><li>We assume that all firm maximise profits where Marginal Revenue = Marginal Cost, which is the profit maximising output. </li></ul>
  10. 10. Caveat Emptor <ul><li>We can assume that the buyer is not too reckless in making a buying decision that may cause him to lower his utility. </li></ul>
  11. 11. Market Failure <ul><li>When left to the free market, sometimes scarce resource may not be distributed well. </li></ul><ul><li>This means that the government has to intervene with either price floor, price ceiling, indirect tax, indirect subsidies or moral suasion. </li></ul>
  12. 12. Law of Diminishing Returns <ul><li>If more of a variable input is used and holding at least one input as fixed, we assume that the total productivity of a product will increase, be stable and then experience diminishing returns. </li></ul>
  13. 13. Information Asymmetry <ul><li>In economics, the lack of access to good and reliable information may cause a potential buyer to make a decision that will be detriment to his final satisfaction. </li></ul>
  14. 14. Barriers to Entry <ul><li>A milestone of this concept is that different degrees of barriers to entry will help evolve into the 4 main market structure of perfect competition, monopolistic competitive, oligopoly and monopoly. </li></ul>