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2. MANAGERIAL
ECONOMICS
(MICRO)
SEMESTER 1

3. UNIT 1
CHAPTER 1
Basics of Economics

5. UNIT 1 BASICS OF ECONOMICS
Introduction to Economics
Economics is the social science that analyses the production, distribution, and
consumption of goods and services.

6. UNIT 1 BASICS OF ECONOMICS
Definition
Economics is defined in various ways by different scholars as follows.

7. UNIT 1 BASICS OF ECONOMICS
Basic Concepts of Economics
•Scarcity
It is the concept between our limited resource and unlimited want and it is different for
both, individual and for country. Scarce resources for an individual are money, time and
skill and for a country, they are capital, labour force and technology.
•Production Possibility Frontier (PPF)
It represents the point at which an economy is producing goods and services more
efficiently, thereby allocating resources in the best way possible.
•Opportunity cost
It is the value of what is given up in order to have something else. It is unique for each
individual and determined by his or her needs, wants, time and resources (income).

8. UNIT 1 BASICS OF ECONOMICS
Categories of Economics
There are two main categories of economics:
•Macroeconomics
It is concerned with total output of a nation and the way that nation allocates its limited
resources of land, labour and capital in an efficient way.
•Microeconomics
It is more specific in its approach and is concerned with individuals and firms within the
economy. By analysing human tendency and behaviour, microeconomics shows how
individuals respond to changes in price when there is change in demand and supply.

9. UNIT 1 BASICS OF ECONOMICS
Types of Economic Systems
There are two main types of economic systems. They are:
•Market Economy
Market Economy is a type of economic system in which the trading and exchange of
goods and services and information takes place in a free market, and hence it is also
called as free market economy.
•Command Economy
An economy which is controlled by the Government is called as Command Economy. Here,
the decisions what, when, how and from whom to produce etc. are taken by the
centralised authority.

10. UNIT 1
CHAPTER 2
Demand Supply Analysis

12. UNIT 1 DEMAND SUPPLY ANALYSIS
Introduction to Demand Supply Analysis
In a market economy, individual consumers make plans of consumption and individual
firms make plans of production, based on changes in market prices.
Concept of Demand
Demand is a flow concept, which means that the change in price will lead to change in
demand for goods. It refers to both, the consumer’s ability to pay and willingness to buy.

13. UNIT 1 DEMAND SUPPLY ANALYSIS
Market Demand

14. UNIT 1 DEMAND SUPPLY ANALYSIS
Law of Demand
“All other factors being equal, as the price of a good or service increases, consumer
demand for the good or service will decrease and vice versa.”
LAW OF DEMAND
When
prices go
up…
The
quantity
demanded
goes up
The
quantity
demanded
goes down
When
prices go
down..
Price and
quantity:
Inversely
proportional

15. UNIT 1 DEMAND SUPPLY ANALYSIS
Price Elasticity of Demand
It measures the rate of quantity demanded due to a change in price.

16. UNIT 1 DEMAND SUPPLY ANALYSIS
Concept of Supply
Supply is also a flow concept. It refers to both, the producers’ ability to sell (produce) and
their willingness to sell.
Price Elasticity of Supply
It measures the rate of response to quantity demand due to price change.

17. UNIT 1 DEMAND SUPPLY ANALYSIS
Factors affecting supply are as shown below:

18. UNIT 1 DEMAND SUPPLY ANALYSIS
Market supply

19. UNIT 1 DEMAND SUPPLY ANALYSIS
Law of Supply
“All other factors being equal, as the price of a good or service increases, the quantity of
goods or services offered by suppliers increases and vice versa.”
LAW OF SUPPLY
When
prices
go up…
The
quantity
offered
goes
down
When
prices go
Price and
quantity:
directly
proportional
The down..
quantity
offered
goes up

20. UNIT 1 DEMAND SUPPLY ANALYSIS
Equilibrium in Demand and Supply
Equilibrium is a price where there is no surplus and deficit of goods. That means total
demand and total supply in market is equal.
Equilibrium as per the Change in Demand and Supply

21. UNIT 1 DEMAND SUPPLY ANALYSIS
Equilibrium in demand and supply
Equilibrium in demand and supply curve

22. UNIT 1 DEMAND SUPPLY ANALYSIS
Role of Government in Setting Price
The Government plays a crucial role in setting prices and applies some legal limits on how
high or how low a price may go, as high price may be unfair to the buyer and low price
may be unfair to the seller.
•Price Ceiling
If the price of a product is unfairly high, the Government can set a price ceiling, or legal
maximum price a seller may charge for a product.
•Price Floor
If the price of a product is unfairly low, the Government can set a price floor or minimum
fixed price that sellers can charge.

23. UNIT 1
CHAPTER 3
Analysis Of Consumer
Choice

25. UNIT 1 ANALYSIS OF CONSUMER CHOICE
Introduction: Utility
People buy goods and services because all the goods and services provide satisfaction to
people, and economists call this satisfaction as utility. People have unlimited demands but
limited resources and the consumption patterns differ as per the individual income level.
Utility Theory
•Utility is an abstract concept rather than a concrete, observable quantity. We prefer
goods/services having a higher satisfaction level in comparison to the ones with lower
satisfaction level.

26. UNIT 1 ANALYSIS OF CONSUMER CHOICE
Total Utility
•It is the aggregate of some of the satisfaction or benefits that the individual gains by
consuming given amount of goods and services in an economy.
•Total utility increases as more goods are consumed.
Marginal Utility
•It is the additional satisfaction or amount of utility gained from each extra unit of
consumption.
•Marginal utility usually decreases with each additional increase in the consumption of
good. This decreasing part is called “Law of Diminishing Marginal Utility”.

27. UNIT 1
CHAPTER 4
Production Analysis

29. UNIT 1 PRODUCTION ANALYSIS
Introduction to Production
The processes and methods which convert tangible inputs (manpower, raw materials, and
semi finished goods) and intangible inputs (ideas, information) into goods and services is
called as production.
Production Analysis
•The analysis of production and cost begins with a period called short run.
•The Short Run is defined in economics as, a period of time where at least one factor of
production or variable is fixed i.e., it cannot be changed.
Production Function
Firms use production factor to produce products. The relationship between production
factor and output is called as Production Function.

30. UNIT 1 PRODUCTION ANALYSIS
Total, Marginal and Average Product
•A total product curve shows the quantity of outputs that can be obtained from different
amount of variable factor of Production, assuming that the Factors of Production are fixed.
•The amount by which output rises with addition of one extra unit of a variable factor is
the Marginal Product of the variable factor like labour.
•The Average Product of Labour is the ratio of output to the number of units of labour.