Microeconomics: Theory and Applications with Calculus, 4e

1.1 Microeconomics: The Allocation of Scarce Resources

Individuals and firms allocate their limited resources to make themselves as well off as possible. Consumers select the mix of goods and services that makes them as happy as possible given their limited wealth. Firms decide which goods to produce, where to produce them, how much to produce to maximize their profits, and how to produce those levels of output at the lowest cost by using more or less of various inputs such as labor, capital, materials, and energy. The owners of a depletable natural resource such as oil decide when to use it. Government decision makers decide which goods and services the government will produce and whether to subsidize, tax, or regulate industries and consumers ...