Green University of Bangladesh 

Assignment
For Mid-term
Course Title: Microeconomics
Course Code: ECO 101

Submitted by:                                       Submitted to: 

Shahriar Zaman Md Fakhrudoza Bari
ID: 201906022 Lecture, Green  
Dept: Business School Business School
Section: 1 Green University of 
Semester: Spring 2021 Bangladesh
1.Expalin all the three big economic problems with an example of production.
The economic problem
All societies face the economic problem, which is the problem of how to make the
best use of limited, or scarce, resources. The three big economic problem are – 1.
What to produce? 2. How to produce? And, 3. For whom to produce?

Let’s relate this problem with a production firm name Nokia. When mobile phone
market is taking by others firm they are running of ideas ….
1. What to produce?

Nokia have to decide the best combination of goods and services to meet their
varied wants and needs. Nokia must decide what quantities of different resources
should be allocated to these goods and services.
2. How to produce?

Nokia also have to decide the best combination of factors to create the desired
output of goods and services. For example, precisely how much land, labor, and
capital should be used to produce consumer goods such as Smartphone or parts
of smartphone.
3. For whom to produce?

Finally, Nokia need to decide who will benefit from the output from its economic
activity, and how much they will get. This is often called the problem of
distribution.

Then Nokia starts to looking for solution of these 3 big economic problem.
1. Solution of what to Produce:

‘which smartphone are to be produced and in what quantities? The Smartphone

which do not command positive prices in the market would not be produce.
Therefore, only those smartphones with positive prices are to be produced and in
such a way that would clear the markets.
The quantity in which a smartphone is to be produced is set at that level where
demand equals supply. If quality produced is more or less, then there will be dis
equilibrium in the market and price will fluctuate. Hence, to maintain stable
equilibrium price it becomes necessary to make demand and supply equal. This
rule is applicable for each smartphone. In this way, first central problem is solved.
2. Solution for how to Produce:

In context of this it is: ‘which techniques are to be adopted’? Technology means

the correct proportion in which the different factors of production are to be
employed. There are two types of techniques. A labor-intensive technique would
employ relatively more labor and less capital. On the other hand, capital-
intensive technique means more capital and less labor.
The choice of technique depends on the prices of the factors of production. That
is, if labor is cheap and capital is expensive, a labor-intensive technique would be
considered and vice-versa. The prices of labor and capital are determined by the
demand for and supply of labor and capital respectively. In this way, the second
problem will be solved.
3. Solution for Whom to produce:

The solution of this problem is very simple smartphone can be consumed only by
people who have more purchasing power. Price mechanism determines the
income of the workers, purchasing power. The purchasing power of the owner of
capital is determined in the same way. Thus, when the price of every commodity
and every factor of production are determined, the third problem will be solved.

At last in briefly, I think: The economic problem exists because, although the
needs and wants of people are endless, the resources available to satisfy needs
and wants are limited. The firm is a central institution in the functioning of any
economic system in which people meet their needs through the division of labor,
cooperative production, and the exchange of goods and services. As part of the
system, firms serve to produce goods and services for sale on the marketplace, a
necessary function allowing each person to combine specialization in work with
the satisfaction of his or her multiple needs.
Making an economic choice creates a sacrifice because alternatives must be given
up. Making a choice results in the loss of benefit that an alternative would have
provided. It is necessary to appreciate that opportunity cost relates to the loss of
the next best alternative, and not just any alternative. The true cost of any
decision is always the closest option not chosen.

2.Evaluate the concept of ‘Cateris Peribus' in your own?

Concept:
The Latin phrase ceteris paribus means “other things being equal.” It’s typically
used to describe an economic situation of cause and effect while assuming that all
other factors stay the same. Keep reading for ceteris paribus examples in
economics and how it applies to psychology and psychology as well

Reason for using ceteris peribus:

Economic is not an exact science because it relies on human behavior. However,
ceteris paribus allows economists to make assumptions that variables like human
buying patterns, inflation rates and unemployment will remain fixed over a period
of time. They can then build economic models that allow them to apply a change
to each factor one by one.

Examples of ceteris paribus :

If the price of milk increases, ceteris paribus, people will purchase less milk.
Ceteris paribus doesn’t consider the price of competing products, the availability
of milk or other factors that would affect customers’ decreasing desire to buy less
milk. It only considers the cause (increased price) with one effect (decreased sales
of milk).

In briefly I think; It is important when we study the cause and effect relationship
between two specific variables. In such case, we assume that other factors remain
constant according Ceteris Paribus and it identifies the exclusive impact of the
variable under study rather than the confounding it’s effect of other variable.