Introduction to

Microeconomics

LESSON 1
JULY 9,2018
 What is 'Microeconomics'

 Microeconomics is the social science that studies the

implications of individual human action, specifically
about how those decisions affect the utilization and
distribution of scarce resources.
 Microeconomics shows how and why different goods
have different values, how individuals make more
efficient or more productive decisions, and how
individuals best coordinate and cooperate with one
another.
 Generally speaking, microeconomics is considered a
more complete, advanced and settled science than
macroeconomics.
Microeconomics: Definition and Description

 Microeconomics can be defined as that part of economics

concerned with single factors and the effects of
individual decisions.
 DEFINITION: Microeconomics is the study of
individuals, households and firms' behavior in decision
making and allocation of resources. It generally applies
to markets of goods and services and deals with
individual and economic issues.

 DESCRIPTION: Microeconomic study deals with what

choices people make, what factors influence their choices
and how their decisions affect the goods markets by
affecting the price, the supply and demand.
 Microeconomics is a balancing act

 Limited Resources—the problem of scarcity—of

money/of time
 All humans face scarcity
 Scarce Resources Multiple Desires
 Microeconomics—most fundamental part of
Economics. It looks at issues from the Individual
perspective, how it affects the individual
 Smart Common Sense

 Economics is nothing but smart common sense.

 Blending scarce resources to optimize returns
 Everyday in the world we are faced with many
choices. On the one hand there are consumers
whereas on the other side there are producers of
goods. So making the right choice, thus, is a
balancing act between our need for a good and the
producers willingness to part with it at a certain
price.
 Tangible and Intangible Goods

 Goods:
Something that gives us satisfaction/ pleasure/
happiness. Can be an object you desire, time spent
with family/ TV shows /Internet/
 Tangible goods are quantifiable usually in
monetary terms.
 Services: Intangible product that gives happiness.
Like the time you spend with your family over a
dinner.
 How can intangible goods be quantified

 In Economics we have to quantify intangible things in

Economics
 E.g.: Travelling in train and having forgotten your ticket.
 TT fines you or you have to be jailed. If the fine is Rs.
1000/-you may just pay it else the other option is to be
jailed.
 At some point the fine reaches a level where you don’t
mind going to jail than paying this fine. For e.g. it is
hiked to Rs.. 50,000/- and you are indifferent.
 The value of going to jail for seven days is 50,000
 This is the Reserve or Reservation price
 Reservation Price

 Reservation (or reserve) price is a limit on the price

of a good or a service. On the demand side, it is the
highest price that a buyer is willing to pay; on the
supply side, it is the lowest price at which a seller is
willing to sell a good or service. Reservation prices
are commonly used in auctions, but the concept is
extended beyond.
 SOME KEYWORDS

 Definitions of Microeconomics
 Resources
 Wants/Desires
 Scarcity
 Allocation
 Individuals
 Tangible Goods
 Intangible Goods
 Reserve/Reservation Price