HKCEE Microeconomics

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HKCEE Microeconomics

• Chapter 1
• The Nature of
• of Economics

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What is Economics?

• The study of how men allocate l_________
  resources to satisfy their u_____________ wants.

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What is Economics?
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Want and Demand

• Want
• A desire
• A particular want can be perfectly satisfied
• Demand
• Want p_________________ power

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Want or Demand?
A want
A demand
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Scarcity and Opportunity Cost
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Remarks on Scarcity

• Scarcity is a r______________ concept
• Scarcity exists when limited resources are
  insufficient to satisfy all unlimited wants
• Scarcity is simply a condition that we want more
  than we have
• Scarcity is a universal problem
• Scarcity can be reduced but not be eliminated

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Is Sea Water Scarce?

• No! Because we do NOT want more than we have.

Exercise 1 TB/P.3/MCQ 1 Exercise 2 TB/P.4/Q
1.1 Exercise 3 TB/P.5/MCQ 2
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Opportunity Cost (OC)

• OC is the h_____________ valued (or best) option
  f_____________
• We choose the highest valued/best option and
  forgo the second best option, which becomes our
  OC in a making decision

Exercise 4 TB/P.7/MCQ 3
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Opportunity Cost (OC)

• What is OC for Dorothy to choose the doll?

ALL?
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Opportunity Cost (OC)

• Full cost
• out-of-pocket cost income forgone
• explicit cost implicit cost

Closer Look TB/P.9/1.4
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Case Study

• The Case
• Explanation
• Consolidation Exercise (M.C)

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Case Study

• Romeo Juliet A Dilemma

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Wants

• Desires for things
• Unlimited
• In this case, wants may include
• To have a girlfriend
• To be successful in his job
• To have leisure time

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Resources

• Things that used to satisfy our wants
• Types
• Natural resources
• Human resources
• Man-made resources
• In this case, resources may include
• Money time

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Scarcity

• We want more than we have

Unlimited wants Limited resources
To have a girlfriend To be successful in his job To have more leisure time Money Time
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Choice

• Because we cannot satisfy all our wants with
  limited resources, we have to make choice.
• In this case
• Dating with Betty? Alice? Juliet?

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Opportunity cost

• The highest valued option forgone
• In this case
• The OC of choosing to date with Juliet is the
  forgone dating with Alice? Betty?

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Scarcity, Choice OC
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Multiple Choice Exercise

• (1) Which of the following statements
• concerning wants is FALSE?
• Human wants will not exists if men
• are more concerned for others.
• Human wants are unlimited.
• The priority of wants for a person can
• change over time.
• Wants may be different for different
• persons.

A
B
C
D
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• (2) Which of the following statements about
• choices is FALSE?
• In making choices, some wants have to be
• given up.
• It is scarcity that leads to choices.
• Sacrifice is involved in making choices.
• We always choose the alternative of the
• second priority

A
B
C
D
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• (3) With limited pocket money, you rank soft
  drink first, followed by potato chips, and
  finally a sandwich. What is your opportunity cost
  of buying the bottle of soft drink?

Another bottle of soft drink. A pack of potato
chips. A sandwich. A pack of potato chips or a
sandwich
A
B
C
D
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• (4) The cost of an event is the
• Best option
• Best option forgone
• money spent.
• All options available

A
B
C
D
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• (5) Scarcity
• 1. means that the amount of resources is not
• sufficient to satisfy all our wants.
• 2. means that we want more than we have.
• 3. implies we have to make choices.
• (1) (2) only (1)
  and (3) only
• (2) (3) only (1) ,
  (2) and (3)

A
B
C
D
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• (6) Which of the following statement on want
  is
• CORRECT?
• If we are very rich, we can satisfy all our
  wants.
• Want refers to a desire as well as the
  ability to
• satisfy that desire.
• Because of unlimited wants, we cannot satisfy
• some of our wants.
• People are willing to give up some of their
• wants.

A
B
C
D
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• (7) The cost of an act will be zero if ..
• there is no money
• the act has no result
• there is no price
• there is no scarcity or there is no choice

A
B
C
D
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Remarks on Opportunity Cost

• Only the highest valued option forgone is
  regarded as cost

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Remarks on Opportunity Cost

• Cost changes only if the highest valued option
  forgone changes.

Would the cost change if
No
1. the watch does not function as well as
expected?
2. The book is now half-priced?
Yes
Increase
Exercise 5 TB/P.11/MCQ 4
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Remarks on Opportunity Cost

• Change in value ? change in cost

How does the cost change if the songs on the CD
is not as good as expected?
No
Exercise 6 TB/P.12/Q 1.3 Exercise 7 TB/P.12/MCQ
5 Closer Look TB/P.2/1.9
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Economic Goods

• A good is economic good if its quantity available
  is i____________________ to satisfy all our wants
• Scarce resources are used in production
• More of it is p_______________
• Quantity demanded (Qd) is larger than quantity
  supplied (Qs) at zero price
• Commanding a positive price
• Examples air conditioner sport shoes

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Free Goods

• A good is free good if its quantity available is
  s________________ to satisfy all our wants
• No scarce resources are used in production
• More of it is NOT preferred
• Quantity demanded is smaller than quantity
  supplied at zero price
• Commanding zero price
• Examples
• Sea water air on the earth

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Free Goods? Economic Goods?
Sea water
Tap water
Economic Good
Free Good
Exercise 8 TB/P.13/MCQ 6 Exercise 9 TB/P.14/MCQ
7 Closer Look TB/P.15/1.10
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Free vs. Economic Goods
Free Goods Economic Goods
Produced without using scarce resources Produced with scarce resources
More of it is NOT preferred More of it is preferred
Zero production OC Positive production OC
Zero price Positive price
Qd lt Qs at zero price Qd gt Qs at zero price
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Consumer Goods

• A consumer good is any good which satisfies human
  wants directly
• They are produced for direct consumption
• Examples
• air-conditioners used in classrooms
• bread consumed by housewives

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Capital/Producer Goods

• A capital good is any good that is used for
  producing other goods or services
• They are produced for indirect consumption
• Examples
• air-conditioners used at home
• bread used as part of decoration in a bread shop

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Consumer or Capital Goods?
Consumer Goods
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Consumer or Capital Goods?
Capital Goods
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Consumer vs. Capital Goods

• Whether a good is consumer good or capital good
  is NOT classified by its nature, but by how and
  where it is being used.

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Basic Economic Problems

• What to produce?
• What kinds of product to be produced?
• What quantity of it should be produced?
• How to produce?
• Which production method to be used?
• For whom to produce?
• How to distribute the quantity?
• What criteria should be chosen?

Exercise 10 TB/P.16/MCQ 8
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Traditional Economy

• Economic decisions are made by referring to
  customs and traditions
• The three basic economic problems are being
  solved by following the practices of previous
  generations/ancestors.

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Planned/Command Economy

• Most/All economic decisions are made by the
  central authority
• Most of the productive resources are socially
  owned and under the control of the central
  government
• The three basic economic problems are being
  solved by following a set of c__________________
  and o___________.

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What to produce?
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For whom to produce?
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Market Economy

• Most/All economic decisions are made by
  individuals
• Most of the productive resources are
  p________________ owned
• The three basic economic problems are being
  solved by p__________ m____________________.

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Market Economy

• What to produce?
• Product prices serve as signals to direct the
  producers to find out what to produce
• Higher price ensures the most profitable kind of
  products

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Market Economy

• How to produce?
• Factor prices serve as signals to direct the
  producers to identify the cheapest method of
  production
• Lower price ensures the least costly method of
  production or ensures the most profitable
  production

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Market Economy

• For whom to produce?
• Prices determine who gets what and in what
  quantity
• Goods are distributed to those who are able and
  willing to pay the highest price for it

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Exercise 11 TB/P.19/MCQ 9
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Mixed Economy

• NO pure planned or market economy
• All the economies are mixed economy which
  contains both the features of planned and market
  economy
• Resources are allocated by
• market forces, commands and orders from the
  authority, and traditions and customs

Exercise 12 13 TB/P.20/MCQ 11 TB/P.20/Q 1.6
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Basic Circular Flow
Economics Clinic TB/P.23-26