Microeconomics

What is economics?
It is the choices that people and
society have to make.
E.g. Buying a CD or buying a book
E.g. Buying a car or buying a house
E.g. Providing health care facilities or
building infrastructure
E.g. Whether to go to college, and if
so, which one

Why Study Economics?

it touches every part of life
looking at how people value products
looking at the most efficient or cost
effective ways of creating a product
how the economy works
a
better
understanding
of
investments and how domestic and
foreign
economies
effect
your
personal investments and wealth

Scarcity, Goods and Bads

wants are greater than our resources

Not possible to buy everything

Problem of scarcity

Contd..
An item that costs something is called
scarce.
Anything with a price on it is called an
economic goodthese include goods and
services.
A free good is a good for which there is no
scarcity.

An economic bad is anything you want to

get rid of (pollution, disease, garbage)

Economics divided into four

parts

Wealth definition
Welfare definition
Scarcity definition
Growth definition

Scope of economics
Subject matter of economics
Nature of economics
Limitations of economics

Subject matter
Aristotle: economic management of
state and household
Adam smith: enquiry into nature and
causes of wealth
Marshall: material requisites of
welfare

Contd...
Robbins:
i) Efforts of human beings
ii) To acquire scarce resources
iii) For satisfaction of unlimited wants

Contd...
Modern economists:
i) economic activities : kinds &
objectives
ii) economic systems
iii) economic policies

Nature of economics
Nature
of
economi
cs
Science

Positive

Normati
ve

Art

 A positive statement is a
statement of fact.
It may be right or wrong, but its
accuracy can be tested by
appealing to the facts.
Unemployment is rising.
Inflation will be over 6 percent by
next year. If the government
cuts taxes, imports will rise.
These are all examples of positive

 A normative statement is a
statement of value: a statement
about what ought or ought not to be,
about whether something is good or
bad, desirable or undesirable.
It is right to tax the rich more than the
poor. The government ought to
reduce inflation. Old-age pensions
ought to be increased in line with
inflation.
These are all examples of normative
statements.

Contd...
Science
Systematic body of
knowledge
Observation of
facts
Measurement
Explanation
Verification

Art
Practical
application
Solution to the
problem
Realistic situation
Practical basis of
assumptions

Microeconomics
is a branch of economics that studies
how the individual parts of the
economy, the household and the
firms, make decisions to allocate
limited resources, in markets where
goods or services are being bought
and sold.

Micro economics Studies:

How resources are allocated to the
production of goods and services
How goods and services are
distributed among the people
How efficiently they are distributed

Importance of
microeconomics
To understand the working of the
economy
To provide tools for economic policies
Helpful in the efficient use of
resources
Help to businessmen
Helpful in understanding the problem
of taxation
Helpful in understanding the
conditions of economic welfare

Limitations of
microeconomics
Based on unrealistic assumption of
full employment
Based on the assumption of no
interference of government
Is concerned with the study of parts
and not whole