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Assignment(Managerial Economics)

Assignment(Managerial Economics)

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Registration No. :-
Shekhar Sharma
Answer 1. (a) Father of Economics Adam Smith Published his book in 1776: He described economics as“The Science of wealth”. According to him “The acquisition of wealth is the main objective of human activity. Therefore, it is necessary to study how wealth is produced. This is the subjectmatter of the economics”. As this is a wealth oriented definition, thus it attracts many critism.Then came the definition of Alfred Marshall. He said “Political economy or Economics is a studyof means and actions in the ordinary business of life”. Marshal was criticized for being restricted tothe earning and spending class only. It did not answer the questions as to How, Why and What etc.There were many other definitions given by many economists, but the definition given by LiouelRobbins in 1932 was a definition, which is accepted by most of the economists. According toRobbins “Economics is the science which studies human behavior as a relationship between endsand scarce means which have alternative uses”. Here ends refer to wants which are considered to beunlimited. The use and allocation of scarce resources to production of goods and services whichwill give maximize satisfaction. Scarcity of resources also compels us to decide how the differentgoods & services would be produced.
Production Possibility curve (PPC)
This is a very basic tool but a very important one. We’ll use this tool to study the about the problem of scarcity by using this tool. The problem of scarcity was given focused by Prof.Samulson by using the production possibility curve of production possibility frontier.Basic Assumptions or Production Possibility Curve:1) There is full employment in the society which means all the four factors of production are fullyemployed and there is no unemployment in the society.2) The supply is limited which means that supply of factors are fixed and they can be reallocated or shiftedwithin limits among different uses.3) Technology is constant which means that there is no innovations’ going in the society.We can use this technique to illustrate the economizing problem with the help of an imaginarytable containing some of the alternative combinations of breads and sewing machines, which theeconomy might choose.ProductsABCDEBreads (in hundred thousand)01234Sewing Machine (in Thousand)109740
1.Four factors of production- Land, Labour, Capital and Enterprise.2.Improvement in existing technology.
If we closely observe the data we find that we have two extremes here. The alternative Aand alternative E. At ‘A’ there is no production of bread which mean all the resources available the production of only and only sewing machine. Same is the case with where there is production of only bread. The ‘D’’B’ and ‘C’ are the combination of the two goods. The economy generallyadopts the ‘D’ ‘B’ or ‘C’ alternatives. As we move from ‘A’ to ‘E’ the economy changes thecombinations. When the society is moving from ‘A’ to ‘E’ the society is consuming one sewingmachine. At any point of time, a fully employed and fully producing economy must scarce; theeconomy cannot have all the commodities at one time.The above mentioned explanation can be explained graphically with the use of ProductionPossibility Curve (PPC). The PPC represents shifting of resources from one production to another.If a point falls on the Production Possibility Curve it means the factors of production arefully employed.If the production is taking place at point ‘U’ it means there’s under employment and thereare some unemployed factors in the society. Whereas if the production takes place at point ‘P’, itshows the shortage of factors of production. Whereas if the economy wants to reach the point ‘P’ itwill have to increase the efficiency and production capacity of the factors of production.Answer.1 (a)
Micro and Macro Economics
The term ‘Micro’ has been derived from the greek word ‘mikros’ which means ‘small’. Inmicro-economic approach, attention is concentrated on a very small part or the individual units.Hanson terms it as “atomistic individualistic approach.”Boulding has described micro-economics as the study of “The particular firms, particular households, individual prices, wages, incomes, individual industries and particular commodities.”Thus micro economics is the study of the behavior of individual consumer’s, individualfirm or workers. It studies, for example the motive of a business man in diverting his capital fromthe cotton textile industry to the Weller industry or that of an individual producer for increasing the production of commodity A rather than commodity B.
Scope of Micro Economics:
Micro-economic analysis explains the allocation of resources assuming that the totalresources are given. The following chart given of the view of the scope of micro-economics.
Macro-Economics: Definitions and Scope
The term ‘Macro’ has also been derived from another Greek word ‘Makros’ meaning large.The word itself was coined in 1933 by Ragnar Frisch.Macro-economics implies a study of economic aggregates or the wholes. The problems likefull employment, unemployment, economic stability and economic growth cannot be accuratelyinvestigated through the examination of infinitesimally small units like individual consumers, producers, workers or firms. The actions of a single employer cannot in any way, have a perceptible impact upon the employment situation of a country. The production or investment by asingle firm is unlike to generate cyclical fluctuations. The proper analysis of such problem requiresan aggregated thinking. Full employment, economic growth and instability are concerned with theentire economic system. Their analysis and solution in the right perspective can be possible only if a macro approach and aggregative instruments of analysis and policy are employed.
Micro-economic Analysis
Theory of CommodityPricingTheoryFactor PricingWelfare EconomicsTheory of DemandTheory of SupplyRentWagesInterestProfit

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