introductory economics

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IntroductoryIntroductory
microeconomicsmicroeconomics
Guide by:-Mr.U.P.Tote

2. Acknowledgement
We take this opportunity to express our deep
sense of gratitude to our economics teacher
Mr.Tote for spending his time and giving us his
valuable guidance and for the interest he took in
our project.
At this point we would also like to place on
our record our sincere effort of total
commitment, dedication and hard work put by
our each and every friends for their kind support
and encouragement we got for this project. Last
but not least we would like to thanks one and
whole. 2

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Definition of
economics
The study of how society
chooses to allocate its scarce
resources to the production
of goods and services in
order to satisfy unlimited
wants

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microeconomics vs.
macroeconomics
• Macroeconomics
Thebranch of
economicsthat
studiesdecision-
making for the
economy asawhole
• Microeconomics
Thebranch of
economicsthat
studiesdecision-
making by asingle
individual,
household, firm,
industry, or level
of government

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What is
ceteris
Paribus?
A Latin phrasethat meansthat
whilecertain variablescan
change, “all other things
remain unchanged”

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BASIC CONCEPTS:
• Scarcity - the fundamental
economic problem that human wants
exceed the availability of time,
goods, and resources.
• Choice – Because individuals
and society can never have everything
they desire, they therefore are forced
to make choices
• Opportunity cost – the second best
alternative foregone for a chosen
option.

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1. Land Resource- any natural resource
provided by nature
2. Labour - The mental and physical capacity
of workers to produce goods and services
3. Capital - The physical plants, machinery,
and equipment used to produce other
goods
(Financial capital - The money used to
purchase capital)
4. Entrepreneurs - The creative ability of
individuals to seek profits by combining
resources to produce innovative products
factors of ProDuction

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LandLand
LaborLabor
CapitalCapital
Entrepreneurship organizes
resources to produce goods
and services
Entrepreneurship organizes
resources to produce goods
and services

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Graphs provide a means to clearly
show economic relationships in two-
dimensional space. Economic analysis
is often concerned with two variables
confined to the upper right-hand
(northeast) quadrant of the coordinate
number system.
Graph

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A shift in a curve occurs only
when the ceteris paribus
assumption is relaxed and a third
variable not on either axis of the
graph is allowed to change

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Marginal
analysis
- An examination of the
effects of additions to or
subtractions from a
current situation

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Production Possibilities
Curve:
- A curve that shows the
maximum combinations of
two outputs that an
economy can produce,
given its available
resources and technology

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Technology:
The body of knowledge
and skills applied to
how goods are produced

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A
B
MilitaryGoods
Consumer Goods
Unattainable
Inefficient
Production Possibilities Curve
Efficient

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• A production possibilities curve
illustrates an economy’s capacity to
produce goods, subject to the constraint
of scarcity.
• The production possibilities curve is a
graph of the maximum possible
combinations of two outputs that can
be produced in a given period of time,
subject to three conditions:
Production Possibilities Curve

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(1) All resources are fully
employed
(2) The resource base is not
allowed to vary during the time
period.
(3) Technology, which is the
body of knowledge applied to the
production of goods, remains
constant.

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• Inefficient production occurs at any
point inside the production possibilities
curve.
• All points along the curve are efficient
points because each point represents a
maximum output possibility.
• All points outside the curve are
unattainable due to scarcity of resources.
Points “inside”, “along” and
“outside” the PPC

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• PPC is usually concave to the origin
because of the law of increasing opportunity
costs that states that the opportunity cost
increases as the production of an output
expands.
•The explanation for the law of increasing
opportunity costs is that the suitability of
resources declines sharply as greater
amounts are transferred from producing one
output to producing another output.
The shape of PPC

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Economic Growth
• The ability of an economy to
produce greater levels of output,
represented by an outward shift of
its production possibilities curve as
a result of an increase in resources
or an advance in technology

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A
MilitaryGoods
Consumer Goods
Increase in Resources
B

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Agriculture
Manufacture
Technological Advance in
Manufacturing Sector

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Increase in
Resources
Balanced
Economic
growth

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Technological
advance
Unbalanced
Economic
growth

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- The fundamental economic questions facing any
economy are What, How, and For Whom to
produce goods.
- The WHAT question asks exactly which goods
are to be produced and in what quantities.
- The HOW question requires society to decide the
resource mix used to produce goods.
-The FOR WHOM problem concerns the division
of output among society’s citizens.
Basic Eco no mic Pro blems

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