Micro

Written Assignment 1

1. Define scarcity. Provide examples of goods that are not scarce.

Scarcity can be defined as, the means that a society has limited resources and therefore cannot produce all the goods and services people wish to have.

Technically speaking, all goods are finite, meaning that there is not an infinite amount of any one good. However, there are numerous amounts of water and rock on the planet earth.

2. How does Adam Smith's concept of the invisible hand explain why markets move toward equilibrium? Do market participants need to know about the invisible hand for it to function? Explain your answer.

Adam Smith stated that “Households and firms interacting in Markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes”. Economics is based off the simple point that prices delegate the economic activity. Price is the mechanism which pushes/ pulls the market to equilibrium. No matter what market, buyers look at a price in order figure out the demand. Sellers also look at the price when they

decide how much to supply. Market prices reflect both decisions. Equilibrium takes place when a buyer demands all that they care for which in turn makes a supplier, supply all that is demanded.

Market participants do not need to know about the invisible hand for it to function. This is why it is called invisible, because it just happens. Individuals tend to act in their own self interest; this is how resources are allocated. The supply and demand of resources based on individuals own self interest is how the market balances out to reach its equilibrium point.

3. Use the demand curve graph found at the following link to answer the questions that follow.

Demand Curve

o How would point A be represented as an ordered (x,y) pair?

(20, $24)

o What does this curve show?

I believe that this curve shows a shifting demand curve. When income increases the demand curve...