Sample Microeconomics Paper on Scarcity Choice and Cost

Microeconomics:  Scarcity, Choice and Cost

Today, firms engage in decision making in regard to how they utilize resources. It is worth noting that resources are scarce or limited. As a result, firms must find the best ways on how to utilize such scarce resources. They focus on initial needs and avoid costs, which they can forego to reduce their overall cost of production. One of the scarce resources of modern times that have proved to be scarce are rare earth metals. An article by International Business Times (2011) indicates that this resource is very scarce and hence firms engaging in its use should focus on minimizing any material loss. Rare earth metals are used in making high technology items such mobile phones and laptops among others.

Resources could be natural or manmade. Natural resources include minerals and water. It is worth noting that although such resources occur naturally, they can be easily depleted. In this particular case, rare earth metals are high limited. As International Business Times (2011) reports, its deposits is high in China but minute in other countries. This is the reaso0n behind the ruling by World Trade Organization that China should not hoard on these products. This would ensure that other nations that do not produce this rare commodity do have access to it. In spite of this, it is clear that the resource is likely to be depleted in the future.

Opportunity cost refers to the foregone costs by firms and individuals as a result of making one choice and not the other (Tregarthen, & Rittenberg, 2012). When firms decide to purchase one good, instead of another of equivalent value, the non purchased good is what we call opportunity cost. In this case technology device manufacturing companies are focusing on using rare earth metals only on the most important parts of technology devices and substitute the other areas where these metals are not needed with other metals and plastics. This is because purchasing such rare earth metals for areas that are not technologically needed pose high level of opportunity cost. It is worth noting that with only one country producing this rare asset, firms in other countries are acquiring it at extremely high prices (International Business Times, 2011)

In production, firms are forced to seek the best ways to minimize costs associated with production resources. Such production resources are the natural non-renewable resources such as oil, labor, entrepreneurship as well as capital. Technology is equally among the factors that are used in production process. In this process, there is high level of interconnection between households and firms. This results to the emergence of the demand and supply. Firms focus n producing what households can consume at the prevailing prices. They focus on the level of goods and services that customers are not only able to buy, but also willing to do so. What the organization present to consumers for sales is normally referred to as supply. A typical supply and demand curve is as indicated in the diagram below

P indicates the price

Q indicates the quantity of goods demand or supplied

The New York Times (2011) indicates the high level of demand for rare earth metals by firms in Russia, US and Japan, resulting to these firms pushing their governments to liaise with the World Trade Organization in pushing for China to export more. In this particular case, China has been pushing for reduction in the level of export of rare earth metals. This is aimed at preventing depletion of this rare resource in China. At the same time, low supply of raw materials results to increase in prices something that would significantly benefit China. A reduction in price of good that is highly in demand would result to increase in prices as indicated in the diagram below

Source: Tregarthen, & Rittenberg, (2012)

As indicated above a left shift of supply curve pushes the price high. In some cases, a shift in price would result to significant decline in the overall level of products resulting to a new equilibrium. In this case, this would not happen. This is based on the understanding that the rare earth metals and the consumers are scrambling to get hold of the item, thus significantly pushing prices up.

As indicated earlier, a reduction in amount of goods supplied results would affect consumer choices since they are equally operating using scarce resources. In this case, rare earth metals are used in making of technology equipments by firms in that industry. Its reduction would thus result to increased cost of raw materials (International Business Times, 2011). This would increase the cost of producing technology items. As a result, the overall price levels of gadgets such as iPads and iPhones and the so called tablets would go up. This results to only the households with high income acquiring the products while the poor population do not afford

Conclusion

In conclusion, it is evident that China is pivotal in driving firms’ microeconomics as well as consumer choices when it comes to rare earth metals and the products made of such materials. A reduction in supply of these metals by China to other countries would thus end up pushing the price of raw materials high increasing cost of production. Nevertheless, the move by China could not be viewed as selfish, but one informed with the understanding that the product in questions scarce and should be exploited efficiently.

 

 

 

 

 

References

International Business Times (2011). China rare earth export restrictions found unfair by World

Trade Organization while China objects and says rules needed to protect the environment. Retrieved from http://www.ibtimes.com/china-rare-earth-export-restrictions-found-unfair-wto-china-objects-says-rules-needed-protect

Tregarthen, T. D., & Rittenberg, L. (2012). Principle of Microeconomics. New York, NY: Worth

Publ.