Chapter 1 Microeconomics

1. Microeconomics
Lecture 1
Prepared by : Khalida Nauman
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2.  Definitions of economics.
 Economic problems.
 Division of economics.
 Microeconomics and choices.
 Choice and opportunity cost.
 Rational choices.
 Microeconomics objectives.
 Economics Models.
 Factors of production.
 Economic systems.
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3.  The study of how society chooses to allocate its
scarce resources to the production of goods and
services in order to satisfy unlimited wants.
 A social science that studies how individuals,
governments, firms and nations make choices on
allocating scarce resources to satisfy their
unlimited wants.
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4.  Economics is the study of how people choose to
use resources.
 Resources include the time and talent people
have available, the land, buildings, equipment,
and other tools on hand, and the knowledge of
how to combine them to create useful products
and services.
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5.  Unlimited Wants
 Scarce Resources –
Land, Labour, Capital
 Resource Use
 Choices
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6.  Scarcity is the fundamental economic problem of
having seemingly unlimited human wants in a
world of limited resources. it states that society
has insufficient productive resources to fulfill all
human wants and needs.
 Because of scarcity various choices have to be
made between alternatives.
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7. Economics is traditionally divided into two main
branches:
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8. • Macro comes from Greek word, makros, meaning
“large”
• Study of the economy as a whole. It is thus
concerned with aggregate demand and aggregate
supply.
• Aggregate demand we mean the total spending in
the economy.
• Aggregate supply we mean the total national
output of national good and services.
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9.  Macroeconomics also studies the problems of
recession, unemployment, inflation, the balance of
international payments and cyclical instability, and
the policies adopted by government to deal with
these problems.
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10.  ‘Micro’ comes from Greek word, ‘Mikros’ meaning
‘small’.
 Microeconomics is a branch of economics that
studies individual units; e.g. households, firms and
industries.
 It studies the interrelationships between these
units to determining the pattern of production and
distribution of goods and services.
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12.  Which of the following are macroeconomic issues, which are
microeconomic ones and which could be either depending on the
context?
(a) Inflation.
(b) Low wages in certain service industries.
(c) The rate of exchange between the pound and the e
(d) Why the price of cabbages fluctuates more than that of cars.
(e) The rate of economic growth this year compared with last year.
(f) The decline of traditional manufacturing industries.
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13.  What goods and services are going to be
produced and in what quantity, since there are not
enough resources to produce all the things people
desire?
 How are the things going to be produced?
 For whom things are going to be produced?
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14.  Choice involves sacrifice. The more food you
choose to buy ,the less money you have to spend
on other goods.
 The more food nation produces, the fewer
resources will be there to produce other goods.
 This sacrifice of alternatives in production or
consumption of goods is known as opportunity
cost.
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15.  Choices that involves weighting up the benefit of
any activity against its opportunity cost.
 In economics we argue that rational choices
involve weighting up marginal costs and marginal
benefits.
 Rational decision making involves weighting up
marginal benefits and marginal costs of an activity
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16.  Microeconomics is concerned with allocation of
scarce resources.
 It involves two major objectives
 Efficiency
 Efficiency in production
 Efficiency in Consumption
 Equity
A distribution of income that is considered fair and
just.
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18.  A production possibility curve or frontier is a model
that shows alternative ways an economy can use
its scare resources.
 This model graphically demonstrate
 scarcity
 trade-offs,
 opportunity cost,
 and efficiency.
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