The document provides an overview of microeconomics, defining economics as the study of resource allocation to meet unlimited wants and the choices made under scarcity. It differentiates between microeconomics, which focuses on individual and firm decisions, and macroeconomics, which examines aggregate economic variables. Key concepts such as opportunity cost, production possibility frontiers, and the factors influencing economic growth are also discussed.

1. Civil Service Institute
Course:
Microeconomics
Department of Human resource
Management
2/20/2022
Ahmed M. Egeh
MSc in Development Economics
1

2. What is Economics?

3. Chapter One: Basic concept's of Economics
 What is Economics?
 Economics can be defined as the study of how to allocate scarc
resourses to satisfy unlimited wants.
 It is the study of how people, institutions, and society make
choices under conditions of scarcity.
 Economics is a social science that focuses on the production,
distribution, and consumption of goods and services, and
analyzes the choices that individuals, businesses,
governments, and nations make to allocate resources.

4. Microeconomics and Macroeconomics
 Microeconomics is the study of the economic choices individuals
and firms make and how those choices create markets.
 Uses of Microeconomics
While the uses of microeconomics are varied, one useful way to
categorize is by types of users
– Individuals making decisions regarding jobs, purchases, and
finances
– Businesses making decisions regarding the demand for their
product or their costs

5. Cont..
 macroeconomics Branch of economics that deals with
aggregate economic variables, such as the level and growth rate
of national output, interest rates, unemployment, and inflation.
 Basically these are macroeconomic goals
1. Lower unemployment
2. High economic growth
3. Lower Inflation

6. Positive and Normative Economics
 Economics can be analyzed from two perspectives: positive
economics and normative economics.
 Positive economics deals with scientific explanations of the
working of the economy.
Example:
1. The current inflation rate in Somaliland is 12 percent.
2. Poverty and unemployment are the biggest problems in Somaliland.
3. The life expectancy at birth in Somaliland is rising.

7. Normative economics:
 It involves value of judgment or is the part of economics science
which involves someone’s value of judgment about
 what the economy should be?
 What particular policy action should be recommended to solve
economic problems.
 what is good or what is bad.
Example:
 There is a need for intervention of government in the economy.

8. Theories, Principles and Models
 Like the physical and life sciences, as well as other social sciences,
economics relies on the scientific method. That procedure consists
of several elements:
•The observation of real-world behavior and outcomes.
•Based on those observations, the formulation of a possible
explanation of causes and effects (hypothesis).

9. Cont..
 The testing of this explanation by comparing the outcomes of specific events to
the outcomes predicted by the hypothesis.
1. The acceptance, rejection, or modification of the hypothesis based on these
comparisons.
2. The continued testing of the hypothesis against the facts.
Economics theories and principles are statements about economic bahiour or the
economy that enable prediction of the probable effects of certain actions.
Economic principles and models are highly useful in analyzing economic behavior
and understanding how the economy operates.

10. Cont..
 Economics theories and principles are statements about economic
behavior. A theory is a simplified representation of how two or
more variables interact with each other.
 Theories are used to explain observed phenomena in terms of a set
of basic rules and assumptions.
For example
–The Theory of the Firm
–The Theory of Consumer Behavior

11. Cont..
 There are other things you should know about economic
principles:
a)Generalizations
b)Other-things-equal assumption or other-things-equal assumption
economists use the ceteris paribus
a)Graphical expression

12. Fundamental Questions in Economics
 The study of economics attempts to answer the following
questions which economists are faced with, given the limited
resources.
1. What to produce?
2. How to produce?
3. When to produce?
4. For whom to produce?
5. Where to produce?

13. Scarcity, Choice and Opportunity Cost
 Scarcity refers to the fact that all economic resources that a society needs to
produce goods and services are finite or limited in supply or Scarcity restricts
option and demands choices.
 If resources are scarce, then output will be limited. If output is limited, then we
cannot satisfy all of our wants. Thus, choice must be made. Due to the problem
of scarcity, individuals, firms and government are forced to choose as to what
output to produce, in what quantity, and what output not to produce.
 In short, scarcity implies choice. Choice, in turn, implies cost. That means
whenever choice is made, an alternative opportunity is sacrificed. This cost is
known as opportunity cost.

14. Cont.…
 Opportunity cost is the amount or value of the next best
alternative that must be sacrificed (forgone) in order to obtain one
more unit of a product.
 When a consumer uses his scale of preference to make choice
because of limited resources, it implies that he is making a
decision to satisfy one set of wants.

15. Production Possibility Frontier
 Society uses its scarce resources to produce goods and services. The alternatives
and choices it faces can best be understood through a macroeconomic model of
production possibilities.
To keep things simple, we assume:
 Full employment The economy is employing all its available resources.
 Fixed resources The quantity and quality of the factors of production are fixed.
 Fixed technology The state of technology (the methods used to produce output)
is constant.
 Two commodities The economy is producing only two commodities: food
products and manufacturing equipment.

16. Production Possibility Curve
 A production possibility frontier is a curve showing different combinations of
two commodities that can be produced when all resources are fully utilized.

17. Cont.…
 Each point on the production possibility curve represents some maximum
combination of two products that can be produced if resources are fully and
efficiently employed.
 When an economy is operating on the curve, more manufacturing means less
food products, and vice versa.
 A point outside the curve such as C is desired because it shows more units of
food products and manufacturing equipment produced in an economy.
 But such a point is unattainable because of limited resources and a fixed
technology.
 A point inside the curve is attainable but undesired because it indicates that
full employment is not being utilized.

18. Shifting of the PPF
 A movement from a point on a PPF to a point outside the PPF shows
economic growth. This involves shifting of the PPF outwards to the right.

19. cont...
 The shifting of the PPF to the right (economic growth) can be
brought about by:
 Increase in supply of resources.
 Improvement in resource quality.
 Technological advancement.
 Improvement in skills of production
 Acquiring of grants from abroad.

20. Slope and Shape of the PPF
 The shape of the PPF is referred to as the marginal rate of product
transformation.
 It shoes the quantity of the commodity X that must by given up in
order to produce an additional unit of commodity Y.
 The PPF has a negative slope.
 This implies that for an economy to increase on the production of
a commodity, it has to forego the production of some units of the
other commodity.

21. End
Any Question?