INTODUCTION TO

MICRO ECONOIMICS

Presented By :A. Shivakanth Shetty

Nature and Scope of
Economics
■ Economics is a science or an art
■ It is Applied Economics
■ It is Positive Economics
■ It is Normative Economics
Importance of
Microeconomics
■ Maximizes resources.
■ Advocates market economy.
■ Basis of welfare economics.
■ Provides tools for evaluating economics
policies.
■ Construction and use of models.
Limitation of Microeconomics
■ It deals with individual perspective.
■ Microeconomics uses unrealistic
assumption of full employment.
Economics
■ Macro Economics
■ Macro Economics
Scarcity and Choice
■ Resources are limited and human wants
are unlimited.
■ The questions need to be answered:
- What to produce?
- How to produce?
- For whom to produce?
Types of Economy
■ Market Economy
> Consumers are free to buy goods and services of their choice.
> Decisions are made by producers and consumers.

■ Command Economy
> All the economic decisions are taken by the government.
> Incomes are often more evenly distributed.

■ Mixed Economy
> It a combination of a free market economy and a command
economy.
> Government controls the price fluctuations to achieve certain
objectives.
Production Possibility Curve
■ It helps us to understand the problem
of scarcity better.
■ It shows what can be produced with
the given resources and technology
■ Technology is the knowledge of how to
produce goods and services.
 Shift in Production Possibility
Curve
Y
■ Increase in the
A’
quantities of economic
A resources
Y-Good

■ Improvement in the
quality of resources
■ Advances in
technology
F F’
O X
X-Good
Uses of PCC

■ Knowledge of economic efficiency

■ Distribution of the national income
■ Choice of techniques of production
Partial Equilibrium and General
Equilibrium Analysis
■ PEA studies a market condition
■ PEA is applicable in independent markets
■ GEA studies economy as a whole
■ GEA focuses on how the different factors
function simultaneous in the economy
Economics and Business
■ Business economics deals with the
application of economic theory in decision
making of a firm.
■ Managers use microeconomics to analyze
the operations of a firm.
■ Macroeconomics is used to analyze the
impact of the external environment on the
business.