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Micro Economics CH 1

1. Economics studies human behavior and decision-making under scarcity. It began with Adam Smith's 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". 2. Microeconomics examines individual decision-making units like consumers and businesses. Macroeconomics analyzes aggregate outcomes like GDP, inflation, and unemployment. 3. The basic economic problem is one of scarcity - unlimited human wants but limited resources. This requires choices about what, how, and for whom to produce.

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41 views4 pages

Micro Economics CH 1

1. Economics studies human behavior and decision-making under scarcity. It began with Adam Smith's 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". 2. Microeconomics examines individual decision-making units like consumers and businesses. Macroeconomics analyzes aggregate outcomes like GDP, inflation, and unemployment. 3. The basic economic problem is one of scarcity - unlimited human wants but limited resources. This requires choices about what, how, and for whom to produce.

Uploaded by

rihan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIT- I : INTODUCTION

Economics is all about


1. The origin of economics can be traced to Adam Smith’s book.
An inquiry into the Nature and Causes of Wealth of Nature published in the year
1776.
2. Economics was used to mean home management with limited funds available in
the most economical manner possible.
3. Economics has been defined in many different ways:
(a) Robbins emphasises that economics is a study of human behaviour, where
there is a relationship between ends and scarce means and that the scarce means
have alternative uses.
Microeconomics and Macroeconomics
1. Microeconomics deals with the behaviour of individual decision-making units
such as consumers, resource owners, etc. It is also called Price theory.
2. Macroeconomics deals with aggregate such as national income, aggregate
consumption, etc. It is also called Theory of Income and Employment.
3. Both micro and macro economics are complementary and should be utilised for
proper understanding of an economy.

Central Problems of an Economy


1. Basic economic problem is the problem of choice which is created by the scarcity
of resources. It is also called problem of economising the resources, i.e., the problem
of fuller and efficient utilisation of the limited resources to satisfy maximum number
of wants.
2. Main causes of central problems are unlimited human wants, limited economic
resources and alternative uses of resources.
3. Resources of factors of production can be natural like (land, air), human (i.e.,
labour), capital (like machines, building) and entrepreneurial (i.e., a person who
bears risk).

4. Central problems facing every economy are:


(i) What to produce and how much to produce?
(ii) How to produce?
(iii) For whom to produce?

Production Possibility Curve and Opportunity Cost


1. It is a useful device to graphically explain the central problems of an economy. It
indicates the various combinations of goods and services which can be produced by
full and efficient utilisation of all resources of an economy.
2. It is downward sloping concave to the origin curve.
3. Slope of PPC is called MRT or Marginal Opportunity Cost. Slope of PPC is
increasing showing that if a country wants to produce more of good X it has to give
up increasing number of units of good Y it is called law of increasing marginal
opportunity cost.
4. Any point inside the curve shows inefficient utilisation of resources and any point
outside the curve is unattainable because of scarcity of resources.
5. Opportunity cost is the cost of alternative opportunity gives up. Production
possibility curve is called opportunity cost curve at every point measures opportunity
cost of good X in terms of good Y given up.

IMPORTANT FREQUENTLY ASKED DIAGRAMS DULY LABELLED

Q: Draw a Production Possibility Curve and show the combinations on the/below the/&
above the PPC.
Important Formula:

CALCULATION OF MRT/MOC:
MRT = ΔY/ΔX; implies that MRT = Amount of Y given up / Amount of good X gained.

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