Section A: Microeconomics
Show how different economies attempt to solve the fundamental problem of economics.
According to The Basic Economic Problem (1), economic efficiency is used to minimize waste by ensuring that all the goods and production elements in an economy are distributed to their worthy uses. Economic freedom helps by having the ability to make choices of what goods and services to produce and distribute. It is the right of every person to work, consume, and make investments however they please. Economic security consists of having secure income and resources to keep up with the standard of living presently and in the future. Economic equity involves the fair dispensation of economic resources. Economic growth and innovation involve the use of new concepts to develop goods and services contributing to higher productivity and overall economic growth.
Explain what you understand by Division of labor
Division of labor is the separation of tasks in production so that workers can be able to focus on specific tasks. The overall efficiency in production is increased when workers focus on specific tasks. The division of labor is connected to the growth of the total production and the business as well.
Ways to increase productivity
The ways to improve productivity include increasing the skills of the workforce. This enables them to have better and more skills to incorporate with what they know. Productivity is also increased by improving the allocation of financing to research and expansion. Research helps to improve productivity growth in the long term. Technology is another way to improve productivity. It helps to save time, work efficiently, and increase innovations.
The law of diminishing marginal returns
This is a principle in economics that is significant in finding the correct balance within a company. It plays a major role in the production theory which is the process of transforming inputs into outputs Hayes (1). The law of diminishing marginal returns states that adding one production unit in a production process and at the same time keeping the other stable causes the general production to decrease.
Section B: Macroeconomics
Why do governments seek to control inflation?
When an economy grows, inflation occurs because of the increase in expenses. This causes a rise in prices and the currency becomes worth less than it was previously weakening the exchange rate Kramer (1). Inflation is dangerous to the economy and therefore the government is prompted to use different methods to control inflation. Inflation makes goods and services expensive and also causes an increase in unemployment. It impacts consumers directly for example the high prices for food and other essential needs that a consumer uses daily. The government therefore must control inflation and create job opportunities and solve the unemployment crisis.
How may a government protect an economy from rising imports?
Government protection from rising imports can be done by the implementation of trade barriers. Such barriers include import quotas, administrative trade policies, and tariffs. Tariffs are taxes that are put on imports which increase the prices of those imports for consumers which will make them choose to purchase domestic essentials Guarino (1). Import quotas reduce the supply of imports whereby the purchasers have to buy domestic products at higher prices compared to the global products. They help to limit the number of goods that can be imported to a country over a specific period. Administrative trade policies include laws that are developed to make it difficult for an importer of products in a certain country.
Works Cited Guarino A. S. “Focus Economics” The Economic Effects of Trade Protectionism Retrieved from https://www.focus-economics.com/blog/effects-of-trade-protectionism-on-economy Accessed 17th June 2020 Hayes A. Law of Diminishing Marginal Returns Retrieved from https:// www.investopedia.com/ terms/l/lawofdiminishingmarginalreturn.asp Accessed 17th June 2020 Kramer L. How Do Governments Reduce Inflation? Retrieved from https://www.Investopedia. com/ask/answers/111314/what-methods-can-government-use-control-inflation.asp Accessed 17th June 2020
“Economics: Chapter 2section 1” The Basic Economic Problem: Retrieved from
https://www.phoenixunion.org/cms/lib6/AZ01001825/Centricity/Domain/2646/eco%20c
hapter%202%20concepts.pdf Accessed 17th June 2020
