Introduction to

Microeconomics
By Amjad Hussain
Youtube: Economics with Amjad Hussain
Youtube: Economics with Amjad Hussain
 Meaning of Microeconomics
 Microeconomics is the study of the economic actions of
individuals and small group of individuals
 Household , Investor, Firms, Industries, etc
 How and why these units makes decisions?
 It is also called price theory
 “Microeconomics studies the economic decisions making of
firms and individuals in a market setting: it is the study of the
economy in a small” – Roy J Ruffin
 Microeconomics studies how business firms operate under
different competitive conditions, and how the combined
actions of buyers and sellers determine prices in a specific
market.
 Meaning of Microeconomics

 According to Prof. K. E. Boulding, "Micro

Economics is the study of particular firm,
particular household, individual prices,
wages, incomes, individual industries and
particular commodities."
Subject Matter or Scope of Microeconomics

 Commodity Pricing – Demand Theory and Supply

Theory
 Factor Pricing – Rent, Wages, Interest, Profit
 Welfare theory – What to produce? How to produce?
When to produce? For whom it is to be produced?
Importance of Microeconomics

 To understand the working of economy

 Price determination and allocation of resources
 Helpful in analyzing and framing economic policy
 Optimum utilization of factors of production
 Linear programming
 Predicting
 Helpful to managerial decision making
 Basis of welfare economics
 Field of international trade
Limitations of Microeconomics

 Assumption of full employment

 Free enterprise economy
 Complex economic activity
 Inadequate and misleading
Free Goods and Economic Goods

 The free good is a term used in economics

to describe a good that is not scarce. Free
good is available in as great a quantity as
desired with zero opportunity cost to
society
 A consumable items that is useful to people
but scarce in relation to its demand so that
human efforts is required to obtain it.
Price and Value
 Price is the amount you pay. Value is what the product
or service pays you
 This value could be measured in financial terms,
emotional terms, physical terms, or in any number of
other ways. If you enjoy working out at a gym, the
fulfillment you receive back from the $50 per month
you spend on your membership makes the
expense worth it. If some software you purchase costs
$99, but saves you $250 per month and four hours of
work per week, it’s value is demonstrated in more free
time and greater cash flow.
Characteristic of Human Wants

 Wants are unlimited

 A particular want is satiable
 Wants are complementary
 Wants are competitive
 Wants are alternative
 Wants vary with time, place and person
 Wants vary in urgency and intensity
 Wants multiply with civilization
 Wants are recurring
 Wants changes with habits
 Wants are influenced by income, salesmanship and
advertisement
 Wants are the result of customer convention
 Present wants are more important than future wants
Classification of Wants

 Necessaries

 Comforts

 Luxuries
Production Possibility Curve

 Prof. Samuelson
 Problem of choosing and allocating scarce
resources among alternative uses
 Production Possibility Curve shows the menu of
choice among which a society can choose to
substitute one good for another assuming a given
state of technology and given total resources
 Production possibility curve illustrate three
concepts : Scarcity, choice and opportunity cost
Production Possibility Curve
 Assumptions:
 Two goods
 Full employment
 Fixed resources which can be re-allocated
 Given state of technology
 Short time period
Production Possibility Curve

 Uses of Production Possibility Curve

 1. The notion of scarcity
 2. The problem of choice
 3. Solution of central problems
Economic System

An economics system consists of

those institutions which a given
people or nations or group of
nations has chosen or accepted as
the means through their resources
are utilized for the satisfaction of
human wants
The Functions of Economic System

 It as to decide what things should be produced

 It has to decide how things are to be produced
 It should make optimum use of available
resources
 It has to distribute the total product properly
 It should maintain economic progress and
growth
Free Market Economy
 Buyers and sellers are solely responsible for choices
they make
 Absolute power to prices to determine the allocation
and distribution of good and services
 Prices fixed by forces of demand and supply
 Free trade without any tariff or subsidies by
government
 Role of government is limited to controlling of law and
order
 No role of government in price determination
 Capitalist economy
Planned Economy

 No private property
 Nationalization of means of production
 Planning for economic development
 Socialist
 More equitable distribution of income and
wealth
 Central authority to make economic
decisions
Mixed Economy

 Combinations of advantages of capitalism

and socialism
 Social ownership of factors of production
along with private ownership
 Privately owned means of production are
effectively regulated by state through the
various instruments like fiscal, monetary and
trade policies
India as Mixed Economy

 Dominant private sector

 Decisive role of the market mechanism
 Presence of large public sector
 Economic Planning
 Failed to prevent concentration of economic
power and opportunities
 Duplicity and Multiplicity among public and
private sector
 Regulatory mechanism has failed to allocate the
resources
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