Introduction to microeconomics ch 1


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Introduction to microeconomics ch 1

  1. 1. Microeconomics
  2. 2. What is economics? <ul><li>It is the choices that people and society have to make. </li></ul><ul><li>E.g. Buying a CD or buying a book </li></ul><ul><li>E.g. Buying a car or buying a house </li></ul><ul><li>E.g. Providing health care facilities or building infrastructure </li></ul><ul><li>E.g. Whether to go to college, and if so, which one </li></ul>
  3. 3. Why Study Economics? <ul><li>it touches every part of life </li></ul><ul><li>looking at how people value products </li></ul><ul><li>looking at the most efficient or cost effective ways of creating a product </li></ul><ul><li>how the economy works </li></ul><ul><li>a better understanding of investments and how domestic and foreign economies effect your personal investments and wealth </li></ul>
  4. 4. Scarcity, Goods and Bads <ul><li>wants are greater than our resources </li></ul>Not possible to buy everything Problem of scarcity
  5. 5. Contd.. <ul><li>An item that costs something is called scarce . </li></ul><ul><ul><li>Anything with a price on it is called an economic good —these include goods and services . </li></ul></ul><ul><ul><li>A free good is a good for which there is no scarcity. </li></ul></ul><ul><li>An economic bad is anything you want to get rid of (pollution, disease, garbage) </li></ul>
  6. 6. Economics divided into four parts <ul><li>Wealth definition </li></ul><ul><li>Welfare definition </li></ul><ul><li>Scarcity definition </li></ul><ul><li>Growth definition </li></ul>
  7. 7. Scope of economics <ul><li>Subject matter of economics </li></ul><ul><li>Nature of economics </li></ul><ul><li>Limitations of economics </li></ul>
  8. 8. Subject matter <ul><li>Aristotle: economic management of state and household </li></ul><ul><li>Adam smith: enquiry into nature and causes of wealth </li></ul><ul><li>Marshall: material requisites of welfare </li></ul>
  9. 9. Contd... <ul><li>Robbins: </li></ul><ul><li>Efforts of human beings </li></ul><ul><li>To acquire scarce resources </li></ul><ul><li>For satisfaction of unlimited wants </li></ul>
  10. 10. Contd... <ul><li>Modern economists: </li></ul><ul><li>i) economic activities : kinds & objectives </li></ul><ul><li>ii) economic systems </li></ul><ul><li>iii) economic policies </li></ul>
  11. 11. Nature of economics
  12. 12. Contd... <ul><li>Science </li></ul><ul><li>Systematic body of knowledge </li></ul><ul><li>Observation of facts </li></ul><ul><li>Measurement </li></ul><ul><li>Explanation </li></ul><ul><li>Verification </li></ul><ul><li>Art </li></ul><ul><li>Practical application </li></ul><ul><li>Solution to the problem </li></ul><ul><li>Realistic situation </li></ul><ul><li>Practical basis of assumptions </li></ul>
  13. 13. Microeconomics <ul><li>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. </li></ul>
  14. 14. Micro economics Studies: <ul><li>How resources are allocated to the production of goods and services </li></ul><ul><li>How goods and services are distributed among the people </li></ul><ul><li>How efficiently they are distributed </li></ul>
  15. 15. Importance of microeconomics <ul><li>To understand the working of the economy </li></ul><ul><li>To provide tools for economic policies </li></ul><ul><li>Helpful in the efficient use of resources </li></ul><ul><li>Help to businessmen </li></ul><ul><li>Helpful in understanding the problem of taxation </li></ul><ul><li>Helpful in understanding the conditions of economic welfare </li></ul>
  16. 16. Limitations of microeconomics <ul><li>Based on unrealistic assumption of full employment </li></ul><ul><li>Based on the assumption of no interference of government </li></ul><ul><li>Is concerned with the study of parts and not whole </li></ul>