Your SlideShare is downloading. ×
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Micro eco
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Micro eco

211

Published on

Published in: Economy & Finance, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
211
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. MICROECONOMICSPREPARED BYMD. RAHMAN RAHEDrahmanrahed@gmail.com
  • 2. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.com CHAPTER: INTODUCTION 1. What to produce in what quantity- It is the number one central economicQ.WHAT IS CENTRAL ECONOMIC problem. As the resource are limitedPROBLEM? so decision about production of goodsANS: Every country in the world has some and services is to be taken properlycommon economic problems. These otherwise demand for goods andcommon economic problems are known as services cannot be fulfilled and peoplecentral economic problems. Problems are may suffer. Decision about productiondue to scarcity of resources. or choice of production of goods and services in face of limited resources isQ. WHY DO ALL COUNTRIES OF very vital and it is considered as vitalTHE WORLD FACE THE problem for a country.PROBLEMS? 2. How to produce (selection of process) - How to produce refers toANS: All the countries in the world face selection of methods or techniques ofthe central economic problem due to production for producing goods andscarcity of resources. services. If selection of techniques ofQ. WHAT IS PPC? production is not appropriate, under such case, cost of production will beANS: Production Possibility Curve (PPC) unnecessarily high and people willis one, the different points of which show have to pay high prices for thedifferent combinations of two commodity.commodities which can be produced withsame amount of resource. There are two techniques of production; labor intensive and capital intensive. Whether labor intensive or capital intensive followed, decision must be taken. 3. For whom to produce- That means distribution of services and goods among people living within the country. Fig: PPC Q. WHAT IS ECONOMIC SYSTEM?Point P = 3y+0x; point E = 2y + 1x ANS: Rules and regulation that arePoint F = 1y+ 2x; point P1 = 0y +3x followed for running productive orAll these can be produced is require same economic activities are considered asamount of resource. Economic System. There are three types of economic system-Q. WHAT ARE THE CENTRALECONOMIS PROBLEMS? 1. Capitalism 2. SocialismANS: Central economic problems can be 3. Mixed economydivided into three parts. It is discussed inbelow. 2|P a ge
  • 3. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comQ. WHAT IS CAPITALISM? ANS: Price system solves all central economic problems under capitalism.ANS: Capitalism is an economic systemwhere firm, farm and any other productive What to produce- this problem is solvedinstitution that is owned, controlled and by price system. Price of the commodityregulated by private individuals and there will determine whether the commodityis no interference by state. Ownership of will be produced or not. Producersprivate property is allowed under generally give preference to produce thosecapitalism. There is no bar to become commodities, the price of which is high inowner of the property. Capitalism is that order to gain more profit.kind of system where production is carried How to produce- this problem is alsoout for earning profit not for publicwelfare. solved by price system whether labor or capital intensive technique will be selectedQ. WHAT IS SOCIALISM? is influenced by price of labor and price of capital. If price of the labor is low inANS: Socialism is that kind of economic relation of capital intensive, then laborsystem where farm, firm and any other intensive technique will be selected. Ifproductive institutions are owned by the capital intensive technique is low in astate and government on behalf of the state relation with labor, then capital intensiveregulates and controlled the activities technique will be selected.related to the productive institutions.Ownership of the private property is not For whom to produce- that is distributionallowed under socialism. The state is the of produced commodity, this problem alsomain authority of the ownership. solved by the price system underProduction is carried out only for the capitalism. Those who are able to pay thewelfare of the people of the country not for price for the commodity they get theprofit. chance to enjoy the commodity. Those are not able to pay the price; they cannot getQ. WHAT IS MIXED ECONOMY? the chance to enjoy the commodity.ANS: Mixed economy is that economic Q. THERE IS A POWERFUL BODYsystem where some features of socialism IN SOCIALISM WITHIN THEand some features of capitalism are GOVERNMENT. WHAT IS IT?combined together. Productive institutionsare owned by private as well as ANS: Under socialism there is powerfulgovernment. Ownership of private is body within the government which isallowed under mixed economy. Aim of called Central Planning Commissionproduction is both for profit and welfare of (CPC). Central Planning Commission isthe people of the state. entrusted with power to find out solution of central economic problems. ThereforeQ. HOW CENTRAL ECONOMIC under socialism Central PlanningPROBLEMS ARE SOLVED UNDER Commission solves central economicCAPITALISM? problem. 3|P a ge
  • 4. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comQ. HOW CENTRAL ECONOMIC CHAPTER: DEMANDPROBLEMS ARE SOLVED INSOCIALISM? Q. WHAT IS DEMAND?ANS: Central Planning Commission ANS: In economics demand for(CPC) solves the central economic commodity means desire for commodityproblems in socialism. backed by purchasing power and willingness to purchase.What to produce- this problem is solved Demand = Desire + Purchasing powerby Central Planning Commission byconsidering the demand for commodities +Willingness to purchaseof the people living within the countryduring particular period of time. Central Q. DEMAND IS RELATED TOPlanning Commission conducts wide THREE VITAL THINGS. WHAT AREspread survey about the demand for THEY?commodity of the people and on the basis ANS: Demand is related to commodity orof the result of the survey Central Planning service, price and time.Commission takes decision aboutproduction of commodity. Q. THREE THINGS CONSTITUTE DEMAND. WHAT ARE THEY?How to produce- this problem is solvedby the Central Planning Commission by ANS: Demands constituted with theconducting survey about availability of desire, purchasing power and willingnesslabor and capital during particular period to purchase.of time within the country. If labor isavailable more than the capital, labor Q. WHAT ARE THE FACTORSintensive technique will be followed. If THOSE ARE INFLUENCINGcapital is available than labor, capital DEMAND?intensive technique will be followed. ANS: The factors that are influenceFor whom to produce- that is distribution demand are described in below:of produced commodity, this problem is 4. Price of the commodity- Demand forsolved by Central Planning Commission commodity depends upon its price.on the basis of particular principle. The There is a negative relation betweenprinciple is each one will get chance of price and demand of commodity. Withenjoying commodity according to his own the fall of price demand rises and withcontribution during the production of the the rise of price demand falls.commodity. 5. Price of substitution- Demand for a commodity depends upon the price of its substitute. There is a positive relation between price of the substitute and the demand for the original commodity. If the price of the substitute is high then the demand for the original commodity will be high. If 4|P a ge
  • 5. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.com the price of the substitute is low then ANS: Relation between demand and the the demand for original commodity factors influencing demand is called will be low. demand function. In other words, relation6. Price of the compliment- Demand for between demand that is dependable a commodity is influenced by the price variable and the functions, that influencing of the compliances. There is a demand that is independent variables is negative relation between of called demand function. compliments and demand for original commodity. If the price of the Qdx = f (Px, Ps, Pc, I, Di, T, z) compliments is high then demand for Here, the original commodity will be low. If the price of the compliments low then Qdx = quantity of demand for commodity the demand for original commodity x. will be high. f = function I = income T = taste7. Income of consumer- Demand for a commodity depends upon income of Di = distribution of income consumer. There is a positive relation between income and demand for Px = price of commodity x commodity. Higher the income higher Ps = price of substitute will be the demand. Lower the income lower will be the demand. Pc = price of compliments8. Distribution of income- Demand for a commodity is influenced by Z = size of population distribution of income. More equal the Q. Qdx = f ( Px), WHEN OTHER distribution of income more will be FACTORS ARE REMAINING SAME. the demand. Less equal the WHAT ARE THE OTHER FACTORS? distribution of income less will be the demand. ANS: The other factors are in below:9. Taste for the commodity- If taste for I = income T = taste the commodity is more; demand for that will be more. If taste of the Di = distribution of income commodity is less: demand for that will low. Px = price of commodity x10. Size of population- Demands depend Ps = price of substitute upon the number of purchaser. If size of population is large then the number Pc = price of compliments of purchaser will be more and demand will be high. If the size of the Z = size of population population is small than the number of Q. WRITE DOWN THE GENERAL purchaser will be small and demand DEMAND FUNCTION. will be low. ANS: General demand function enablesQ. WHAT IS DEMAND FUNTION? us to know that demand depends upon the price. But it fails to give information about 5|P a ge
  • 6. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comdemand at a particular price. The general Price of Px Price of Qdxdemand function is; 5 0 4 6Qdx = f (Px) 3 12Q. WRITE DOWN THE SPECIFIC 2 18DEMAND FUNCTION / SPECIFIC 1 24SYMBOLIC DEMAND FUNCTION / 0 30SPECIFIC NUMERICAL DEMAND Q. WHAT IS DEMAND CURVE?FUNCTION? ANS: Demand curve is one the differentANS: Qdx = a-bPx points of which show price on the hand and quantity of demand on the other.Here, Qdx = quantity of demand ofcommodity x. Generally demand curve slops downward to the right.a = constant/ parameter. It indicatesamount of demand at zero price. Demand curve can be derived from demand schedule.b = constant/parameter. It shows by whatamount will change with particular change According to demand schedule at price 5of price. demand is zero. This has been shown by point D in the diagram. Similarly at pricesPx = price of commodity x. 4,3,2,1,0 demand are 6,12,18,24,30 which have been shown by points E,F,G,H, D1Q. WHAT IS DEMAND respectively in the diagram. Now if weSCHEDULE? DERIVE FOR Qdx join points D, E, F, G, H, D1 we get DD1=30 –6Px. curve. This DD1 curve is the demand curve. Demand curve shows the negativeANS: Demand schedule is the list of relation between price and demand. itdifferent prices & different levels/amounts expressed numerically in case of demandof demand. schedule and same is expressed geometrically in case of demand curve.Demand schedule can be derived fromnumerical specific demand function. Give an imaginary numerical specificDemand schedule indicates the negative demand function.relations between price & demand. Example: Qdx = 100 – 20 PAExample: Qdx = 500 – 50 PAQdx =30-6px (i) What is maximum demand atPx= 0 = 30 - 0 =30, Px= 1 = 30 - 6 =24, Px= zero prices?2 = 30 - 12 =18, (ii) At what price demand is zero?Px= 3 = 30 - 18 =12, Px= 4 = 30 - 24 =6,Px= 5 = 30 - 30 =0. (iii) Why does demand curve slope downward to the right? 6|P a ge
  • 7. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comANS: We can say that with the fall of price 3. In case of prestige valued product/demands rises and for which demand curve commodity demand curve slopesslopes down words. upward.Q. WHY DOES DEMAND RISE WITHTHE FAL OF PRICE?ANS: There are three reasons for whichdemand rises with the fall of price anddemand curve slops downward: (a) withthe fall of price of a commodity number ofbuyer of that commodity rises for which Q. WHAT IS EXPANSION-demand rise and demand curve slops CONTRACTION AND INCREASE-downward.(b) income effect-with the fall DECREASE OF DEMAND CURVEof price real income rise of real income Or, MOVEMENT ALONG THE SAMEmeans rise of demand which is called DEMAND CURVE AND SHIFT INincome effect. it is due to this income DEMAND CURVE?effect demand rises. With the fall of price& demand curve slops downward. ANS: If other things/factors remaining(c)Substitution effect- same with the fall of price demand rises. This is called expansion of demand.Q. DESCRIBE BRIEFLY THREEEXCEPTION OF DEMAND CURVE. If other things / factors remaining same then with the rise of price demand willANS: falls.1. In case of commodity of highly In case of expansion and contraction of essential for life (salt, water, air etc) demand, demand curve will not change its demand curve will be vertical straight position, it will remain same. But there line. will be movement along the same demand curve. In case of expansion, movement will be downward and in case of contraction movement will be upward along the demand curve.2. Essential commodity during emergency period (rice, wheat, oil etc) the demand curve slopes upward. FIG: expansion-contraction Expansion and contraction of demand simply depend upon the price where as other factors are assumed to be constant. 7|P a ge
  • 8. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comIf at the same price demand rises it is CHAPTER: SUPPLYcalled increase of demand. If at the sameprice demand falls it is called the decrease Q. WHAT IS SUPPLY?of demand. In case of increase-decrease of ANS: The amount of commodities thatdemand the demand curve will change the producer or seller want to sell at aposition. If demand increases, the curve particular price, at a particular time iswill shift towards right and if decreases, called supply.the demand curve will shift towards left. Q. WHAT ARE THE FACTORS INFLUENCING SUPPLY. DESCRIBE. ANS: The factors that influence supply are described in below: 1. Price of the commodity- there is a positive relation between price and supply of a commodity. With the increase of price the supply of a Fig: increase-decrease product rises and with the fall of a price the supply of the product falls. So supply of a commodity depends upon price of the commodity. 2. Prices of other commodity- if prices of other commodities low, then the supply of original commodity will be increased. If prices of other commodities high, then the supply of original commodity will be decreased. So, there is a negative relation between prices of other commodity and supply of original commodity. 3. Prices of factors of production- if the prices of the factors (land, labor, capital, organization) are high, supply of a commodity will be low. If the prices of the factors are low, supply of a commodity will be high. 4. Technology of the production- if method and technology of production commodity is improved one then production will be 8|P a ge
  • 9. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.com comparatively more and supply Pa….Pc = price of other commodity will be more. If method and Pf = prices of factors of production technology of production commodity is not the improved one T = technology of production then production will be comparatively low and supply will Ns = number of seller be low. C = natural condition 5. Number of seller- supply depends upon the number of seller. More t = tax the seller more will be supply. Less the seller less will be the supply. L= law and order situation. 6. Natural condition- if natural Q. WHAT IS GENERAL SUPPLY condition favorable for production FUNCTION? then supply will be comparatively more. If the natural condition is ANS: Qsx = f(Px), assuming other factors unfavorable for production then remaining same/constant. supply will be less. 7. Tax upon commodity- if It is general supply function. This function government imposes tax heavily gives us information that supplies changes upon a commodity, supply of that with the change of price. But it fails to commodity will be decreased. If give us information about the level of government imposes tax normally supply at a particular level of price. then supply of that commodity will Q. WHAT IS SPECIFIC / SYMBOLIC be increased. SPECIFIC SUPPLY FUNTION? 8. Law and order situation- if law and order situation is normal one, ANS: Qsx= bPx. supply will comparatively more. If Here, Qsx = quantity of supply of law and order situation is not commodity x. normal then supply will be less. b = parameter/ constant. It indicates byQ.WHAT IS SUPPLY FUNTION? what rate supply will change withDESCRIBE. particular change of price.ANS: Relation between supply that is Px = price of commodity x.dependent variable and factors influencingsupply is independent variables and factorsis called supply function. Q. DERIVERD SUPPLY SCHEDULEQsx = f (Px, Pa, …Pc, Pf, T, Ns, C, t, l) AND SUPPLY CURVE FOR Qsa= 20Pa. AT WHAT PRICES SUPPLYHere, WILL STARTQsx = quantity of supply of commodity x ANS: Supply schedule- List of differentPx = price of commodity x prices and different levels of supply is called supply schedule. Supply schedule 9|P a ge
  • 10. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comcan be derived from numerical specific Q. IS THERE ANY DIFFERENCEsupply function. BETWEEN SUPPLY CURVE AND SUPPLY SCHEDULE?Qsa=20 Pa ANS: There is a minor difference betweenPa=0, Qsa=20x0=0 supply schedule and supply curve. SupplyPa=1, Qsa=20x1=20 schedule indicates positive relation between price and supply numerically;Pa=2, Qsa=20x2=40 supply curve indicates positive relation between price and supply geometrically.Pa=3, Qsa=20x3=60 Q. WHEN DOES POSITIVESo, supply schedule indicates positive RELATION BETWEEN PRICE ANDrelation between price and supply. SUPPLY OPERATE?Supply curve ANS: Positive relation between price andSupply curve is one different points of supply operates on other influencingwhich show different prices one hand and factors of supply in constant.different levels of supply on the other. Q. OTHERS FACTORS REMAININGSupply curve can be derived from supply SAME THERE IS A POSITIVEschedule. RELATION BETWEEN PRICE AND SUPPLY. WHAT ARE THE OTHER FACTORS? ANS: Prices of other commodities are constant or, Prices of factors are constant or, Technology of production is constant or, FIG: Number of seller are constant or,According to supply schedule at zero price Natural condition is constant or,supply is zero. This has been shown bypoint “O” in the diagram. At prices 1, 2, 3 Tax on commodity is constant or,supplies are 20, 40, 60 which have been Law and order situation is constant.shown by point A, B, C respectively in thediagram. Now, if we join points O, A, B, C Q. WHY DOES SUPPLY CURVEtogether we will get SS curve. This SS SLOPE UPWARD?curve is supply curve. ANS: With the rise of price supply rise forSupply curve shown positive relation which supply curve slopes upward.between supply and price. Q. WHY DOES SUPPLY RISE WITHSupply will start when price will be above THE RISE OF THE PRICE?zero. 10 | P a g e
  • 11. PREPARED BY RAHMAN RAHEDrahmanrahed@gmail.comANS: Producer aim is to earn profit Q. EXPLAIN THE EXPANSION-through production and thereby supply of CONTRACTION AND INCREASE-commodity. Profit depends upon: DECREASE OF SUPPLY or, MOVEMENT ALONG SAME1. Price of the commodity SUPPLY CURVE AND SHIFT IN2. Cost of production of the commodity SUPPLY CURVE.Higher the price higher will be the level of ANS: If other factors remaining same,profit. In order to earn higher profit with the rise of price, supply will rise. Thisproducer raises supply of the commodity is called expansion of supply.with the rise of price. That is why supplyrise with the rise of price and supply curve If other remaining same, with the fall ofslopes upward. price, supply will falls. This is called contraction of supply.Q. WHAT ARE THE REASONSBEHIND THE EXCEPTIONAL Here supply curve does not change itsSUPPLY CURVE? position, but there will be movement along the same supply curve. In case ofANS: Exceptional supply curve expansion movement will be upward and1. In case of perishable commodity in case of contraction movement will be supply curve slopes downward. downward along the same supply curve.2. In case of commodity used for hobby Fig: expansion-contraction purpose supply curve will be vertical If at the same price supply rises it is called straight line. increase of supply. If at the same price supply falls it is called decrease of supply. Here supply curve change its position. In case of increase, supply curve will shift towards right and in case of decrease; supply curve will shift towards left.3. In case of labor supply, supply curve slopes upward up to certain point and then it bends toward wage. Fig: increase-decrease 11 | P a g e

×