Microeconomic Theories

Running head: MICROECONOMIC THEORIES 1
Microeconomic Theories
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MICROECONOMIC THEORIES 2
Question 1
Opportunity cost is the worth of the next most desired product to get an extra unit of
another product. Usually, when we select to deploy resources to generate one thing, we must
surrender the resources meant for another product (Frank, 2015). Recently, I had to choose
between coaching my young brother, who is struggling with mathematics or going to help my
friend with some duties in his shop and earn a wage at the end of the day. Since I decided to
coach my brother, the opportunity cost of coaching is the foregone wage.
Question 2
a.
A normal good is a product whose demand rises when the income increases and declines
when the income fall. This means the demand for a normal good is positively related to income
(Gillespie, 2014). Since beef is a normal good, the demand for this product will fall following a
sharp decrease in wages. On the diagram one below, a decline in demand for beef is exhibited by
the leftward change in the demand curve from D1 to D. Therefore, the equilibrium price of beef
declines from P* to P and the quantity from Q* to Q.

MICROECONOMIC THEORIES 3
Supply
Price
P*
P
D1
D
Q Q*
Beef
Figure 1: Decline in Demand for Beef
b.
The availability of high-quality feed that speeds up the maturity of cattle will cause the
supply of beef in the market to surge. On the figure one below, a surge in the supply of beef is
expressed by the change in the supply curve to the right from S to S1. Consequently, the
equilibrium price of beef declines from P* to P, while the equilibrium quantity of beef rises from
Q* to Q.