Microeconomics Basic Concepts - 1055 Words

1. Introduction Basic Concepts 1.1 Economics Economics is a study of how people choose to allocate their scares resources to produce, exchange and consume goods and services to satisfy unlimited wants. As in this article, fuel surcharges increases as the price of fuel increases. Economics is also a study of choices made by individuals, firms, governments and society as a whole which helps us to understand economic issues that we read and hear about. In this article, people have a choice whether or not they want to pay more for air tickets as although airlines are making profits, it can still lead to higher fares. 1.2 Scarcity A good or service is scarce if the amount people desire exceeds the amount available at zero price.†¦show more content†¦This would mean higher economic growth for the airline companies and with higher economic growth, it means expectations and thus the demand for airline tickets will also increase due to this fact and thus the supply will increase and if the demand’s increase is more than the supply’s increase, prices will go up as demand is more than supply. 3. Supply 3.1 Law of Supply The Law of Supply states that a direct relationship exists between price quantity supplied of a good, ceteris paribus. When price increases, supply increases and vice versa. This is due to the fact that producers are more willing to sell greater amounts of a good at a higher price as it is relatively more profitable to produce, compared to other goods. In this case, due to the increase of prices of airline tickets and the possibility of it continuing to increase, airline companies are merging together to not only reduce competition but when they merge as one airline company itself, they are able to sell more airline tickets. 3.2 Determinants of Supply (Factor/Resource Price) If higher cost of production were incurred and if the producer were given the same price, they would be less willing and able to sell at all price levels or that a higher price level may be charged at every output level. This is so in the case as, for the airplane to fly from one country to another, it requires fuel which is increasing in price andShow MoreRelatedLearning the Basic Principles and Concepts of Microeconomics: A Response631 Words   |  2 Pagesthis course, and understanding these basic principles of microeconomics has changed the way that I view everyday activities and transactions. I have a better understanding of the key concepts that go into decisions we make, whereas before I think I accepted a lot of everyday decision-making at face value. Now I understand that even if it is subconscious we are making tradeoffs in our decision making. Going into the course I could easily have repeated concepts like supply and demand without actuallyRead MoreMicroeconomics1441 Words   |  6 PagesQuestion 1) With examples give 5 reasons why the study of microeconomics is important. 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