Microeconomics: Concepts of Want, Scarcity, Factors of Production and Choices

This article discusses the primary concepts of microeconomics such as want, scarcity, factors of production, and choices. It also explains the Production Possibility Frontier (PPF) model and its representation of economic concepts such as scarcity, opportunity cost, and choices.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
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Author Note

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Table of Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................3
References........................................................................................................................................5

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Answer 1:
Economics, as a subject, is based on several conceptual pillars, the primary ones being
those of want, factors of production, scarcity and choices. These concepts are interlinked both
from the perspective of the individuals as well as the society.
The term “want”, in terms of economics refers to the desires of individuals, which can be
satisfied, with the consumption of goods and services. For the production of each commodity or
service, “factors of production” are required, which are of four types- land, labor, capital and
entrepreneurship. All the factors of production are however limited in supply in the world, which
gives rise to the concept of “scarcity” in economics (Baumol & Blinder, 2015). From the
perspective of society, the term scarcity in economics refers to the constraint in the supply of all
the resources of production, which also limits the production of all types of goods and services.
Again on the perspective of individuals, there remains scarcity in their affordability due to the
presence of income constraint. This concept of “scarcity” gives rise to the notion of “choice”
(Frank & Cartwright, 2013).
As resources are scarce, therefore one of the primary challenges faced by the society is
the decision regarding what to produce, how much to produce and for whom to produce. This, in
other words, indicates towards the fact the society needs to face the trade-offs regarding the
production of different goods and services such that the welfare of the society is maximized
(Hall & Lieberman, 2012). On the other hand, from the perspective of an individual, due to the
constraint in the purchasing power, the individual needs to face different tradeoffs while
choosing the optimal commodity bundle, which will maximize the satisfaction of the same,
thereby bringing in the notion of “choice”.

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Answer 2:
The Production Possibility Frontier, in economics shows the locus of the different
combinations of goods and services (in a two commodity economy) which can be optimally
produced in the presence of constant resources and uniform level of technology, at a point of
time. The production possibility curve, thus, shows the application of the concept of trade off as
for the production of one additional unit of one commodity, in the PPF model, leads to reduction
in the production of the other (Pindyck & Rubinfeld, 2014).
Figure 1: Production Possibility Curve
(Source: As created by the author)
Any point below the curve is inefficient and any point outside it is unattainable at that
point of time.
The PPF Model represents the following economic concepts:

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Scarcity- Scarcity in economics refers to the fact that no resources in this world are limited. This
in turn leads to the problem of trade off between the production of different goods and services,
which in turn is depicted in the production possibility model.
Opportunity cost- The opportunity cost of choosing one unit of a commodity is the amount of
the next best alternative, which is sacrificed or foregone to consume that particular unit of the
former commodity. This is shown in the production possibility curve, as can be seen from the
above figure. To increase the production of X from XA to XB, the production of Y has to be
reduced from YA to YB (Stock & Watson, 2012).
Choices- The PPC theory also depicts the economic concept of choices, as due to the presence of
scarcity of resources, there comes the need for choices of production of different goods and
services in quantities such that the welfare of the society is maximized (Tietenberg & Lewis,
2016).

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References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage
Learning.
Frank, R., & Cartwright, E. (2013). Microeconomics and behaviour. McGraw Hill.
Hall, R. E., & Lieberman, M. (2012). Microeconomics: Principles and applications. Cengage
Learning.
Pindyck, R. S., & Rubinfeld, D. L. (2014). Microeconomics.
Stock, J. H., & Watson, M. W. (2012). Introduction to econometrics: Global edition. Boston,
MA: Pearson Education.
Tietenberg, T. H., & Lewis, L. (2016). Environmental and natural resource economics.
Routledge.