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MANAGERIAL ECONOMICS (MICRO)SEMESTER 1
CHAPTER 1
Basics of Economics
UNIT 1
UNIT 1 BASICS OF ECONOMICS
Introduction to EconomicsEconomics is the social science that analyses the production, distribution, and consumption of goods and services.
UNIT 1 BASICS OF ECONOMICS
DefinitionEconomics is defined in various ways by different scholars as follows.
UNIT 1 BASICS OF ECONOMICS
Basic Concepts of Economics•ScarcityIt 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).
UNIT 1 BASICS OF ECONOMICS
Categories of EconomicsThere are two main categories of economics:•MacroeconomicsIt 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.
•MicroeconomicsIt 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.
UNIT 1 BASICS OF ECONOMICS
Types of Economic SystemsThere are two main types of economic systems. They are:•Market EconomyMarket 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 EconomyAn 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.
CHAPTER 2
Demand Supply Analysis
UNIT 1
UNIT 1 DEMAND SUPPLY ANALYSIS
Introduction to Demand Supply AnalysisIn a market economy, individual consumers make plans of consumption and individual firms make plans of production, based on changes in market prices.
Concept of DemandDemand 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.
UNIT 1 DEMAND SUPPLY ANALYSIS
Market Demand
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 demande
d goes up
The quantity demande
d goes down
When prices
go down..
Price and quantity: Inversely
proportional
UNIT 1 DEMAND SUPPLY ANALYSIS
Price Elasticity of DemandIt measures the rate of quantity demanded due to a change in price.
UNIT 1 DEMAND SUPPLY ANALYSIS
Concept of SupplySupply is also a flow concept. It refers to both, the producers’ ability to sell (produce) and their willingness to sell.
Price Elasticity of SupplyIt measures the rate of response to quantity demand due to price change.
UNIT 1 DEMAND SUPPLY ANALYSIS
Factors affecting supply are as shown below:
UNIT 1 DEMAND SUPPLY ANALYSIS
Market supply
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 down..
The quantit
y offered goes up
Price and quantity: directly
proportional
UNIT 1 DEMAND SUPPLY ANALYSIS
Equilibrium in Demand and SupplyEquilibrium 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
UNIT 1 DEMAND SUPPLY ANALYSIS
Equilibrium in demand and supply
Equilibrium in demand and supply curve
UNIT 1 DEMAND SUPPLY ANALYSIS
Role of Government in Setting PriceThe 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 CeilingIf 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 FloorIf the price of a product is unfairly low, the Government can set a price floor or minimum fixed price that sellers can charge.
CHAPTER 3
Analysis Of Consumer Choice
UNIT 1
UNIT 1 ANALYSIS OF CONSUMER CHOICE
Introduction: UtilityPeople 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.
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”.
CHAPTER 4
Production Analysis
UNIT 1
UNIT 1 PRODUCTION ANALYSIS
Introduction to ProductionThe 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 FunctionFirms use production factor to produce products. The relationship between production factor and output is called as Production Function.
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.