Microeconomics Introduction

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Managerial EconomicsMicroeconomics

Introduction

Prof.Nilanjan GuptaJyotirmoy School Of

Business

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Introduction

After this session,you should be able to:

Define Eono!is

Disuss fators that differ bet"een Eono!i #yste!s

Differentiate bet"een $aroeono!is and$iroeono!is

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Introduction

Distin&uish bet"een Positi'e and Nor!ati'e Eono!isand &i'e an e(a!ple of eah.

Define the Eono!i Proble! and e(plain the roleplayed by soiety)s li!ited resoures o!pared to

people)s unli!ited "ants.

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hat is economics!

Eono!is is the study of choice. +t studies ho" people

hoose to use sare resoures to produe 'ariouso!!odities and distribute these &oods to 'arious

!e!bers of the soiety for their onsu!ption.



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"imited #esources $ersus%nlimited ants

u!an "ants -the a!ounts of &oods that "ould bedesired if they "ere free are unli!ited but resoures are

li!ited. hus, the la" of sarity states that "ants

al"ays e(eed soiety)s ability to !eet the!.

herefore, e'ery soiety faes the eono!i proble! ofso!eho" hoosin& what to produce, how to produce,

and for whom to produce.



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&he Basic Economic Pro'lems

Any soiety therefore faes * basi proble!s:

1. Whato!!odities shall be produed in "hat uantities

shall they be produed and "hen shall they be

produed2

2. Howshall the &oods be produed ,i.e., by "ho! 3 "ith

"hat resoures 3 in "hat tehnolo&ial !anner are they

to be produed2

3. For whomshall the &oods be produed2

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(llocation Of Scarce #esources

he i!balane bet"een "ants and the ability to !eetthe! reuires an eono!i syste! to pro'ide for orderly

alloation of sare resoures



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)i*erent resources in a society

he resoures in a soiety an be di'ided into * !ain&roups:

1. All the free &ifts of nature: land, forest, !inerals et.

o!!only 6no"n as natural resoures 3 6no"n to

eono!ist as land.

%. All hu!an resoures !ental and physial 6no"n as

labour.

*. All those !an !ade aids to further the prodution suh

as tools, !ahinery, plant 3 euip!ent "hih

eono!ists alled capital.

hese resoures are alled fators of prodution



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)i*erent resources in a society

7ften a fourth fatorEntrepreneurship is alsodistin&uished.

An entrepreneur is one "ho ta6es ris6s. e or&ani9es the other fators of prodution 3 diretsthe! alon& ne" lines.

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Commodities Divisions

he thin&s that are produed by the fators of produtionare alled o!!odities.

;o!!odities !ay be di'ided into:

A Goods 3


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Production + ,onsumption

Goods 3 ser'ies are atually re&arded as !eans forsatisfyin& "ants.

he at of !a6in& &oods 3 ser'ies is alledproduction"hile the at of usin& these &ood 3 ser'ies is alled

consumption.

E'en thou&h the "ants are unli!ited the resoures ofthe eono!y are li!ited.

$ost of the proble!s of eono!y arise out of the use ofsare resoures to satisfy hu!an "ants.



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- uestions all economies face

%. (y what methods the commodities are to be

produced?

his uestion arises beause there are tehniallydifferent "ays of produin& &oods 3 ser'ies.

?uestions about hoie of !ethods of prodution isdealt by !E"#$ "% #"D)C'"*.

*. ?uestion re&ardin& how goods & services are divided

among the members of the society is onerned "ith

the distribution of ino!e a!on& different indi'iduals 3

&roups of people.

his is dealt by !E"#$ "% D'+#'()'"*.

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4.!ow efficient is the society,s production &

distribution?

o" an effiieny be jud&ed2

Prodution is said to be effiiently or&ani9ed if it is notpossible to inrease the prodution of one o!!odity

"ithout reduin& the prodution of any other o!!odity.

his uestion is dealt in WE-%#E EC"*"/'C+.



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?uestions 1 to 4 are related to the alloation ofresoures 3 distribution of ino!e.

hey are inti!ately related to the "ay in "hih the priesyste! "or6s.

hese are &rouped to&ether under the headin& of

/'C#"EC"*"/'C+.



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0.re the countries resources being fully utilised or

some of them are lying idle?

E'en thou&h resoures are sare, so!eti!es theyre!ain unutili9ed or in'oluntarily une!ployed.

E(a!ple

his subjet !atter is dealt in #DE C$C-E !E"#$.

his subjet reei'ed stron& i!petus "ith thepubliation of General heory 7f E!ploy!ent, +nterest 3

$oney in 1* by @.$ eynes.8/18/14 1Prof.Nilanjan Gupta


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his branh of eono!is is 6no"n as

/C#"EC"*"/'C+.

. 's the purchasing power of money constant or is it

being eroded because of inflation?

#ubjet !atter of $aroeono!is

5. 's the economy,s capacity to produce goods &

services growing from year to year or is it remaining

static?

Dealt by !E"#$ "% EC"*"/'C 0#"W!.


n er epen ence o


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n er epen ence oMicroeconomics +Macroeconomics

Example

1. A&&re&ate in'est!ent funtion an be deri'ed fro! the

indi'idual in'est!ent deisions of the fir!s. #o, here "e

ha'e macroeconomics depending on

microeconomics.

%. he deter!ination of fator pries li6e rent, "a&e,

interest 3 profit is inluded in the subjet !atter of

!iroeono!is.


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Microeconomics +Macroeconomics

Profit is the result of unertainty bearin& 3 unertainty isreated as a result of a&&re&ate de!and. E(a!ple:

Groery store, s"eet shop et.

ere, "e ha'e microeconomics depending onmacroeconomics.

herefore, "e an say that microeconomics &

macroeconomics are complementary ratherthan competitive.


os t /e econom cs ormat /e


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os t /e econom cs ormat /eeconomics

Eono!i theory an be di'ided into % ate&ories:

1. ositive Economics

. his is onerned "ith the desription of fats,iru!stanes, relationships in the eono!y et.

. +t desribes theories 3 la"s to e(plain obser'edeono!i pheno!ena.

Eample

Bhat is the une!ploy!ent rate today2

o" "ill a ta( on petrol affet its use2

. These questions can be resolved only by reerence

to acts.8/18/14 %=Prof.Nilanjan Gupta

os t /e econom cs ormat /e


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os t /e econom cs ormat /eeconomics

2.*ormative Economics

his in'ol'es ethis 3 'alue jud&e!ents.


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$alue + Price

alue of a o!!odity !eans its 'alueinuse.

Prie is represented by 'alueine(han&e.

Eample: Bater has &reat 'alueinuse but 'ery little'alueine(han&e. Dia!ond has little 'alueinuse but

&reat 'alueine(han&e.

BaterDia!ond parado(: #o!e 'ery useful o!!oditiesha'e 'ery lo" pries "hereas ertain nonessential

ite!s ha'e 'ery hi&h pries.

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Scope of Microeconomics

he subjet !atter of !iroeono!i theory an bedi'ided into three broad &roups:

Theory of Consumer Behaviour

A. heory of Produt Priin& Theory of Production & Cost

Theory of Pricing/Markets

Rent


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%ses of Microeconomic &heory

1. igh!y usefu! for the formu!ation of economic "o!icies

#hich #i!! "romote the #e!fare of the "o"u!ation.

+n other "ords, it tells us ho" a free !ar6et eono!y

"ith its lar&e nu!ber of onsu!ers and produers "or6

to deide about the alloation of resoures a!on& the

thousands of alternati'e use.

%. It can $e a""!ied to economic "o!icies. his !eans "e

an use !iroeono!is to analyse the ations of the

&o'ern!ent "hen it funtions to influene the eono!y. For example! the effet of i!position of ta( on a

o!!odity an be e(plained "ith the help of

!iroeono!i theory.

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%ses of Microeconomic &heory

*. Manageria! economics dea!s #ith the a""!ication of

microeconomic mode!sto help the deision !a6ers inthe business enterprises.

4. Internationa! economics is a!so another a""!ication of

microeconomics. or e(a!ple, ho" the &ains fro! international trade an

be distributed a!on& the partiipants.

+n the deter!ination of euilibriu! rate of e(han&e the

tools of DD 3 ## are used.

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!*3 $")

8/18/14 %Prof.Nilanjan Gupta

Documents

Microeconomics Introduction