Economics: the study of choice and microeconomic principles

Rittenberg L.T.

Human capital is used for acquiring knowledge and skills which increase individuals' value and productivity. Such skills are experience, training, and education. These skills aids in providing resources to enhance economic growth, and produce new businesses and technologies.

Despite affording costs in the United States, college education has raised individual's income. More educated persons have higher IQs and well educated and rich parents. Similarly, above hundred other nations with diverse cultures and economic systems, educated people have the same standards.

From the viewpoint of individuals, the college education increases benefits and income, while from the viewpoint of society; it enhances desirable social norm and values, communication and democracy, and produces effective leaders. Its monetary benefits include lowering of the probability of unemployment. On the other hands, non-monetary benefits include psychological benefits i.e. social acceptance, ability to communicate better, and make wise decisions.

On the labor market experience, obtained education has an important impact. The more one acquires education, the better he understands new information, acquaints with novel technologies, and acquires bright skills. Education affects a person's income and the value of his employment. Jacob Mincer counts three advantages of educated workers over less educated workers in his book "Studies in Human Capital" i.e. greater employment stability, higher wages, and greater upward mobility in income.

Our unlimited wants are repetitively in conflict with limited resources, compelling us to involve in several activities and eliminate several others. Scarcity is the situation of choosing among alternatives. Owing to this scarcity, the economists describe the most important concept of opportunity cost, which is the value of the best alternative forgone in making a choice.

The cost of college education involves the money spent for books, fees, and tuition. But the value of time spent on attending classes and studying instead of other activities is the most significant cost. Students either expect bright future or give high value to learning while giving up that time. Keeping in view, for taking the course, the college tuition fee fully reflects the opportunity cost to me for future value. An important personal opportunity cost of taking this course is time. When time is used for one activity cannot be used for other activities. Time used for studying will not be available for other uses. The allocation of time should be viewed like any other decision. One selects time to meet his needs, achieve goals, and satisfy personal values.

The alternative combinations of goods and services can be graphically represented through production possibilities curve while trade barriers are government-induced restrictions on international trade. These restrictions may be in the shape of some disguised barriers like safety, political differences, tariffs and quotas, and different currencies. On one hand, these barriers decrease the welfare, increase the cost, and decrease international trade. On the other hand, these will bring revenue to the imposing nation but loss to the opposite. With reduction in these trade barriers, not only revenue is increased in the whole world, general welfare is also increased. Therefore, a reduction in trade barriers causes the production possibilities curve to shift outward.

Consumption

A

B

Investment

Figure: 1

Figure 1 shows that at Point B, a country increased its resources faster than at Point A. Thus, at Point B, the production possibilities curve of a country would shift outward faster than at Point A.

Factors that cause the production possibilities curve to shift outwards are technological progress, increase in physical capital or labor, and economic growth.

According to the law of comparative advantage, two trading countries can gain when they have different relative costs for producing the same goods. While considering different nations, each of them will have a comparative advantage in some activities and it will specialize in those. Each country will sell those goods having specialization in them while purchase others from other countries.