Chapter no.

1
micro economics
what do you meam by economics?

Economics is the study of how humans make decisions in the face of scarcity.

I Meaning and defination of micro economics

According to kenneth boulding “micro economics is the study of particular firm,
particular household,individual prices, wages, income, individual industries, particular
commodity.”

Kenneth boulding
particular individual

firm price

house hold wages

commodity income
 industry

According to MAURICE DOBB “Micro ecomomics is in fact a micro scopic study

of the economy”

EACH INDIVIDUAL UNIT IS EXAMINED SEPARATELY IN DETAIL

QUESTION

DEFINE MICRO ECONOMY

II SCOPE AND SUBJECT OF MICRO ECOMONY

Theory of
economic welfare

efficiency

direction in
production consumption
production
 product pricing

so it is
how relative pirice
of price depends upon the subdivided into
forces or demand and theory of
supply demand and
theory of
cotton cloth, rice,
car and thosands production of
of other demand side depends cost
commodityare upon consumer
behaviour
determined

supply side covers

analysis of condition of
production, cost and
behaviour of the firm
and industry

FACTOUR PRICING

WAGES RENT INTEREST PROFIT

(price for use of (payment for (Price for use of (the reward of the
labour) use of land) capital) enterpreneur)
 THEORY OF WELFARE

EFFICIENCY IN THE
EFFICIENCY IN EFFICIENCY IN
DIRECTION OF
PRODUCTION CONSUMPTION
PRODUCTION

producing distribution of production of

maximumpossible produced goods those goods which
amount of goods and services for are most desired
and services from consumption in
the given amount of such a way as to
services maximize total
satifaction level

We conclude that Micro economics is mainly concerned with price theory and allocation of
resources it seeks to examine the following basic questions

a) WHAT goods are to be produced and in WHAT quantities ?

b) WHO will produce them & HOW ?

c) to WHOM & how the wealth so produced shall be distributed ?

d) HOW shall resources be allocated to production & consumption in efficient manner

QUESTION

2) scope and subjective of micro economics ?

III Features of micro economics

1) study of individual(single)unit

Micro economics is the study of small individual economic units, like particular household,
individual firm, individual price etc

2) limited scope
Micro economics studies individual economic units & not the whole economy it does not deals with
the nationwide problem like unemplyoment, inflation, deflation, poverty

3) Analysis of the market structure

Micro economics analyses different market structure i.e. perfect competition, monopoly, oligopoly,
monopolistic competition

4) Microscopic approach

Micro economics is the microscopic study of the economy. In the word of prof. A.P. lerner “it is
looking at the economy through microscope. In other words in micro economics we attempt only a
microscopic study of national economy we do not study the national economy in its totality

5) based on cetain assumption

Micro economics asssumes laissez faire policy, pure capatalism, full employment, perfect competion
which does not exist in reality. Also most of the theory is based on the “ceteris paribus” assumption
i.e. other things being constant the assumption makes the analysis simple, but at the same time , it
neglects the interdependance between economic variables

6) price theory

Micro economics is called price theory because it is primarily concerned with determination of price
of good and factors of production

7) slicing method

Micor economics splits the economy into small individual unit and then studies each unit separately
in detail. Thus it is said that micro economics uses slicing method

8) analysis of resources allocation and economic efficiency

Micro economics explain hoe relative price of commodities and factours of production detemines
the allocation of resources which in turn determines what to produce ? how to produce? How much
to prduce? When to produce? How to distribute?

It means micro economy also deals with the problem of income distribution
IV IMPORTANCE AND USEFULNESS OF MICRO ECONOMICS

1) To understand the working of free market economy

2) explain price detemination & allocation of resources

It explain how the relative price and allocation of resources for the production of various goods

3)it helps the business man in decision making

4) useful to the government for framing economic policies, tax policies, price policy, public
expenditure policy

5)