Microeconomics

Irfan Ahmad Shah

NMIMS, Hyderabad

June 16, 2022

Irfan Ahmad Shah Microeconomics

Outline

Introduction to Economics
Why Study Economics?
Scope of Economics
Methods of Economics
The Economic Problems

Irfan Ahmad Shah Microeconomics

Introduction

Everything around you from buying a commodity to driving a car,

from eating outside to working on a laptop
Economics is "the study of how individuals and societies choose to
use the scarce resources that nature and previous generations have
provided"
Economics is the study of this process and its outcomes

Irfan Ahmad Shah Microeconomics

Why Study Economics?

To learn a way of thinking

To understand society
To understand global aairs
To be an informed citizen

Irfan Ahmad Shah Microeconomics

To learn a way of thinking

Opportunity cost
Marginalism
Working of Ecient Markets

Irfan Ahmad Shah Microeconomics

Opportunity cost

Next best alternative

What we give up by not making the alternate choice
Why does opportunity cost arise?
Scarcity of resources
Constrained choice

Irfan Ahmad Shah Microeconomics

Marginalism

Cost benet analysis of additional unit - Marginal cost/benet

Sunk Cost - Costs that can not be avoided because they have
already been incurred

Irfan Ahmad Shah Microeconomics

Ecient Markets

There is no market for excessive prots

Irfan Ahmad Shah Microeconomics

To Understand Global Aairs

Trading partners
Crisis

Irfan Ahmad Shah Microeconomics

To be an informed citizen

Knowledge about the economic issues

Irfan Ahmad Shah Microeconomics

Scope of Economics

Microeconomics and Macroeconomics

Microeconomics deals with the functioning and behaviour of
individual industries, rms, individuals etc
Consumption, Investment, prices of goods and services etc
Macroeconomics looks at the economy as a whole
Aggregate demand/supply, National Income, National product,
Aggregate price level, employment/unemployment of the overall
economy etc.

Irfan Ahmad Shah Microeconomics

The Method of Economics

To answer two types of questions, there are two types of methods

Positive Economics and Normative Economics
Positive Economics attempts to understand the behaviour without
making judgements whether the outcome is good/bad - (WHAT IS)
What determines wages rate, what would happen if income taxes or
corporate taxes are abolished.
Positive economics is divided into Descriptive economics and
Economic theory
Descriptive economics - RBI Handbook
Economic theory - Rational of Data

Irfan Ahmad Shah Microeconomics

The Method of Economics

Normative Economics whether an outcome is good or bad and

whether it can be made better.
It involves judgements - (WHAT SHOULD BE)
Normative economics is also known as policy economics

Irfan Ahmad Shah Microeconomics

The Method of Economics

Models, Variables, Endogenous and Exogenous variables

Models like a map
The principle of Ockham's razor - The principle that irrelevant
details should be cut away.
Ceteris Paribus - Other things being constant

Irfan Ahmad Shah Microeconomics

The Economic Problems

What gets produced

How is it produce and
Who gets it? - Distribution
Capital goods and consumer goods
Why is there a problem? Wants are unlimited but not the
resources
Scarcity problem - Optimization or alternative combinations
Basic resources available are the factors of production
Production possibility curve

Irfan Ahmad Shah Microeconomics