INTRODUCTION TO MICROECONOMICDefinition- A study of how people use their limited resources tofulfill unlimited wants- A science that studies human behavior as a relationshipbetween ends and scarce means which have alternative( L.Robbins )- A study of how people use their limited resources to tryfulfill unlimited wants and involves alternatives or choices- As a study how scarce as a study of how scarceresources are allocated among alternative uses
Microeconomics - Studies individual economic units - The study of individual parts of the economy such as public choices, business choice and personal choicesMacroeconomics - Studies the aggregate behaviour of the entire economy - The study of the economics system as whole such as the national income, the trade cycle, the unemployment rate, inflation and general price levels
Basic Economics Concepts Scarcity - Wants always exceeds limited resources to satisfy clients/society Choice - When there is scarcity, choice have to be made - Everyone cannot have what he @ she wants, so they must choose from the available alternatives Opportunity Cost - Second best alternative that has to be forgone for another choice which gives more satisfaction
Factors of Production Labour - People in the production process that involve both mental & physical effort Capital - Machinery , raw material, building, tools Land - Natural resources ( land, air, water, forest etc ) Entrepreneur – Human ability & capability to combine land, labour & capital to develop production of goods & services
Production Possibilities Curve ( PPC )Definition Used to explain the basic economic concepts of scarcity, choice and opportunity cost Show the various possible combinations of goods and services produced within a specified time with given technology and resources
3 Specifics assumptions to illustrate the PPC - The economy only produces two goods ( eg: food & clothing ) - The economy achieves full efficiency - Economic resources are fixed in quantity and quality - The level of technology is fixed and unchanging
Production Possibilities Sewing Machine Butter A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5
Point A to E - The best possible combination of resources to enable full utilization and to ensure that the country is at full employment Any point inside the PPC ( Y ) - These combinations of production are attainable - Possible to produce butter and sewing machines of this quantity - It shows waste of resources and inefficiency since the production has not reached its maximum level - Leads to unemployment
Any point outside the PPC ( Z ) - Scarcity ( wants exceed output ) - Limited resources and technology -point PPC are unattainable Any point along the PPC ( A to F ) - Choice - It will choose : both attainable & efficient Movement from one point to another ( point C to D ) - Opportunity cost
Basic Economic Problems What to Produce Every society must choose the type & the quantity of goods & services that it will produce How to Produce Refers to the cheapest method of production ( Traditional Vs Robotics / Workers Vs Machine ) For Whom to Produce Refers to distribution. Distribution of economic benefits depend on the distribution income How Much to Produce A producer must identify the quantity of DD in the market ( DD increase : Production of good increase )
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