Term Paper on "Microeconomics the Science of Economics"

Term Paper 4 pages (1400 words) Sources: 2 Style: APA

[EXCERPT] . . . .

Microeconomics

The science of economics is based on several principles that support companies and aid them with increasing the efficiency of their operations. These principles often refer to the proper allocation and usage of resources, in order to retrieve the best results. In addition, a major economics axiom is the tendency to use fewer resources and retrieve better outcomes; in other words, increase the efficiency of corporate activities; ergo, economics is a science of efficiency.

The science of economics is generally based on effectiveness and efficiency. Derived from these, the two fundamental factors are the available corporate resources and the needs of the customers. But the resources are limited, and the needs are unlimited, constantly developing, changing and increasing. Otherwise said, economics is the "study of how people use their limited resources in an attempt to satisfy unlimited wants."

An industrialized economy which desires to mass produce goods and services for the population must possess four vital resources: land and commodities, capital, labor and entrepreneurship. The land is necessary to ensure sufficient space on which the company can conduct its operations. The commodities, or raw materials, are necessary to actually make the goods; they represent the basic needs for the future existence of products. But aside from these particular assets, an organization must also possess skilled and qualified workforce to turn the commodities into final products. And these people must be accordingly remunerated, deriving as such the need for capital resources. Besides paying employee wages, the capital is also required to finance a large series of organizational activities, such as the acquiring of new machineries or technologies and promoting the manufactured items or services offered by the company. And finally, a fourth vital resource for an industrialized economy is the entrepreneur, or the ability to properly manage and coordinate the resources.

The full employment of resources refers to the situation where all resources are being used in the production process. "Full employment is the condition that exists when all available resources are engaged in the production of goods and services. In other words, all resources that could be used for production are being used." Full production on the other hand "is carried out after all submissions and other requirements are performed. Submittals are carried out usually with pilot builds from tools to validate product specification, process capability and fulfill customer submittal and testing requirements."

The economic world is driven by its intense desire to produce as much as possible, but since the natural environment possesses less and less resources, entrepreneurs must be aware of the resource allocation they implement. Here is where the opportunity cost intervenes. The opportunity cost is the "cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action." In the area of resource allocation, the opportunity cost refers to "the value of the next-highest-valued alternative use of that resource." Resources must be allocated while keeping in mind the opportunity cost in order to be able to make the best and most informed decision. Otherwise said, the cost of opportunity helps organizations choose from a wide array of possibilities, all viable, but exclusive one to another, meaning that only one can be chosen.

To better understand the opportunity cost, take the example of a company who owns $50,000 and wishes to invest it in the development of the organization. With this money, they could either purchase new technologies, either offer training programs to their employees. If the managers decide to train the workforce, the opportunity cost is represented by the lost technologies.

In economics, the opportunity cost is linked to the law of increasing prices, which occurs "when society uses more resources (which takes those resources always from the production of the other good), to product any specific good. This causes increased opportunity cost with each additional unit produced of that specific good (increasing amounts of the other good have to be given up)." monopolistic competitive industry is characterized by four basic features: increased number of producers, sellers and consumers; wide variety of differentiated products; sufficient knowledge and information available and finally, free entry on the market. Monopolistic competition… READ MORE

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