UNIT

01 The Economic Way of Thinking

Names of Sub-Units

Introduction to Economics: Concept of Scarcity-trade-offs, Opportunity Cost, Basic Economic Problems,

Microeconomics and Macroeconomics, Managerial Economics – Meaning and Nature

Overview
The unit begins by explaining the meaning of economics and its nature. Further, it discusses the two
main branches of economics, which are microeconomics and macroeconomics. The unit explains the
application of economic concepts and tools in business decision making. It also discusses the basic
problems of an economy which are problem of scarcity and problem of choice.

Learning Objectives

In this unit, you will learn to:

 Explain the meaning of economics
 Describe the nature of economics
 Discuss two main branches of economics
 State the importance of managerial economics
 Enlist the problems of scarcity and choice
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Learning Outcomes

At the end of this unit, you would:

 Assess the importance of economics
 Appraise the tools and concepts of micro and macro economics
 Evaluate the application of economic concepts in business
 Analyse the problems of scarcity
 Examine the opportunity cost associated with decisions

Pre-Unit Preparatory Material

 https://icmai.in/upload/Students/Syllabus-2012/Study_Material_New/Foundation-Paper1.pdf

1.1 INTRODUCTION
Human wants are infinite or unlimited. However, not all wants are equally urgent and important.
Therefore, people have to make choices between wants with a limited amount of money. Economics
deals with the calculated decisions on how to use the limited money resources to satisfy maximum
of one’s needs. For example, Vinod Gawre wants to take a 3-BHK flat on rent in Mumbai. However, he
cannot afford the high rental price in the areas of his choice. He likes the apartment of Maithri Rawat.
Although it is a 2-BHK flat, he decides to rent it as he likes the neighbourhood. To make up for the
rental budget, he decides to reduce his expenses on entertainment and eating out. Similarly, Maithri
had initially set a very high price of ` 50,000 per month for her apartment, but she did not find anyone
interested in that price. She subsequently reduced the price to ` 35,000 per month, which was closer to
what other landlords in the area were charging.
Similarly, businesses also have limited time and money. They also make thousands of big and small
decisions to get the best outcome, which usually is about maximising profit. These countless choices or
decisions that individual consumers, households, businesses and governments make on a daily basis to
satisfy their wants with scarce resources is the root of economics.

1.2 OVERVIEW OF ECONOMICS

Economics is a science that understands and examines the economic behaviour of people. In other
words, economics attempts to study how people allocate their limited resources to their alternative uses
to produce and consume goods to satisfy their unlimited wants and maximise their gains. To do so, they
make a number of choices on how to use their resources and spend their earnings.
A need for making choices arises due to the following three fundamental economic reasons:
 Human wants are infinite or unlimited: The three terms demand, want and desire are often
used interchangeably. However, in economics, each of these terms has a different meaning. Let
us understand the difference between these three terms with the help of an example. Suppose an
individual is willing to purchase a personal computer for his/her work, it becomes his/her desire.
If the individual has purchasing power to buy the computer but is not willing to sacrifice his/her

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money, it becomes a want. However, if the individual is willing to use the money to purchase the
computer, it becomes demand. However, not all wants are equally urgent and important. Satisfying
some wants gives more pleasure than others. Therefore, people have to make choices between wants.
 There are only scarce resources to satisfy human wants: These resources can be natural resources
(land), human resources (labour), man-made resources (capital) and entrepreneurship (those who
organise the above three resources and assume risk in business) time and information. All of these
resources are limited with respect to their demand. This scarcity of resources in relation to infinite
human wants gives rise to economic problems and forces people to make choices. The problem of
choices also arises due to alternative uses of resources; each alternative use gives different returns
or earnings. For example, a land in Mumbai used to set up a factory will give more earnings or
income than when used as a residential building.
 Humans want to maximise their gains: People make choices between alternative uses of their
scarce resources with the objective of maximising their gains. To do so, they evaluate the cost and
benefit of alternative options while making their decisions.

In conclusion, economics is a social science because it deals with human behaviour, i.e., how people deal
with the economic problem of scarcity. It studies economic behaviour of the people and its implications.
However, some economists believed economics as a study of money, while others had a notion that
economics deals with problems, such as inflation and unemployment. In such a case, there was no
proper definition of economics given. Therefore, for simplifying the concept, economics is defined by
taking four viewpoints, which are explained as follows:
1. Wealth viewpoint: This is the classical perspective of economics. According to Adam Smith,
economics is a science of wealth. He is regarded as the father of economics and wrote a book entitled
“An enquiry into the Nature and the Causes of Wealth of Nation” in 1776. In his book, he stated that
the main purpose of all economic activities is to gain maximum wealth as possible. Therefore, he
advocated that economics is mainly concerned with the production and expansion of wealth. Further,
this definition was followed by various classical economists, such as J.B. Say, David Ricardo, Nassau
Senior and F.A Walker. Although wealth definition was an innovative work of Adam Smith, it was
not free from criticism. His definition was criticised mainly due to two reasons. Firstly, Adam Smith,
in his definition, focused only on maximising wealth rather than means of earning wealth. Secondly,
he gave primary importance to wealth and secondary to man. However, wealth cannot be earned or
maximised without human efforts. In this way, he disregarded the position of human beings.
2. Welfare viewpoint: It is a neo-classical standpoint of economics. Alfred Marshall, a neoclassical
economist, associated the term economics with man and his welfare. He wrote a book “Principles of
Economics” in 1980. In his book, he stated that economics is a science of welfare. According to him,
“Political economy or economics is a study of mankind in the ordinary business of life; it examines
that part of individual and social action which is most closely connected with the attainment and
with the use of the material requisites of wellbeing.” His definition was a great improvement in the
definition of wealth as Marshall elevated the position of man. However, his definition was not free
from criticism. This is because Marshall laid emphasis on welfare, but the meaning of welfare is
different to different individuals. Moreover, the definition includes only materialistic welfare and
ignores non-materialistic welfare.
3. Scarcity viewpoint: This the pre-Keynesian thought of economics. Lionel Robbins defined economics
as a science of scarcity or choice in his book “An Essay on the Nature and Significance of Economic
Science”, which was published in 1932. According to him, “Economics is the science which studies
human behaviour as a relationship between ends and scarce means which have alternative uses.”

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The definition provides three basic features of existence of human beings, namely unlimited wants,
limited resources and alternative uses of limited resources. According to Robbins, an economic
problem arises because of unlimited human wants and limited resources. His definition was
criticised because it ignored economic growth.
4. Growth viewpoint: Indicates the modern perspective of economics. The main contributor of this
definition was Paul Samuelson. He provided the growth-oriented definition of economics. According
to him, “Economics is a study of how men and society choose with or without the use of money,
to employ scarce productive uses resource which could have alternative uses, to produce various
commodities over time and distribute them for consumption, now and in the future among the
various people and groups of society.” In his definition, he outlined three main aspects, namely
human behaviour, allocation of resources and alternative uses of resources. Therefore, his definition
was similar to the definition provided by Robbins.

1.2.1 Nature of Economics

There are a number of controversial issues related to its nature. Some economists believed economics
as a science, while other believed economics as a social science.
 Economics as a science: Some economists believed that in economics, a problem is solved by
adopting a scientific approach, which involves collecting and analysing data and making related
laws and theories. For example, various economists examined the concept of employment and
framed relevant theories, such as Say’s law, Pigou’s modifications and Keynes theory of employment.
Economics is considered as a science because there are similarities between the problem solving
process of economics and science. Apart from this, there is another controversial issue related to
whether economics is a positive or normative science. Positive science refers to the science that
deals with the question of what is, while the normative science deals with the question of what it
should be. Positive science is the description of a concept whether it is right or wrong. On the other
hand, normative science is the evaluation of a concept. After a very detailed analysis, it is decided
that economics is a positive as well as normative science.
 Economicsasasocialscience:The basicfunctionofeconomics is to study how individuals, households,
organisations and nations utilise their limited resources to achieve maximum profit. This function
of economics is termed as maximising behaviour or optimising behaviour. In economics, optimising
behaviour refers to selecting the most profitable alternative from the available alternatives.
Therefore, it can be said that economics is a social science that aims at studying human behaviour
with respect to optimal allocation of available resources to achieve maximum profit. For example,
economics covers how individuals allocate their resources (income) to purchase different goods and
services, so that they can achieve maximum satisfaction. In addition, economics also studies how
organisations make their decisions regarding selection of a product to be produced, production
technique, plant location and price of the product. Apart from this, economics also covers how
nations utilise their resources to fulfil the needs of the society so that economic welfare can be
maximised.

1.3 BRANCHES OF ECONOMICS

The scope of economics as a subject continues to grow and expand. Several economists claim that it is
still in a growing stage and many problems are yet to be addressed. However, it is also considered to be
the best developed social science that continues to expand in terms of content and analytical richness.

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Regardless, conventional economics is divided into the two main branches, which are shown in Figure 1:

Microeconomics

Macroeconomics

Figure 1: Traditional Classification of Economics

1.3.1 Microeconomics
Microeconomics deals with the behaviour of individuals, businesses, commodities and prices at the
micro level. It answers the following questions:
 How do individuals and businesses make choices?
 How do their choices affect the demand and supply of goods and services?
 How do their choices impact the prices of goods and services in the market?
 How do markets function?
In business decisions making, microeconomics can be applied to deal with operational issues, which are
internal to an organisation. These issues are under the control of management and can be solved by
taking appropriate decisions. Basically, an organisation has to deal with internal issues related to type
of business and product, size of organisation, technology to be used, price determination, investment
decisions and management of inventory. Microeconomics strives to solve these issues, which are
generally faced by business organisations. The operational issues can be solved by using the following
microeconomic theories:
 Demand theory: This theory helps managers to determine the factors that affect the buying
decisions of consumers and their needs and requirements. In addition, the demand theory helps
managers to answer the following questions:
 Why does a consumer stop consuming certain products?
 How does a customer react with changes in factors, such as price, tastes and preferences and
level of income?
Thus, the demand theory is helpful in deciding the type of product to be produced, determining the
level of production and making pricing decisions in the present market conditions.
 Production theory: The production theory mainly deals with the issues related to production. It
explains the changes in the cost of a product or service and the effect on the total output with
change in a particular factor (input) while keeping the other factors at constant. Apart from this,
the production theory deals with maximisation of output (when the resources are limited) and
determination of optimum size of output. Therefore, it helps managers to decide the size of an
organisation, labour and capital to be employed and total output.
 Price theory: The price theory is concerned with the analysis of market structure and determination
of price. It also enables managers to determine the conditions that are conducive and profitable
for price discrimination as well as how advertising would help in increasing the sales of an
organisation. Therefore, the price theory and market analysis helps in finalising the pricing policies
of an organisation.

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 Profit theory: It is a well-known fact that the main objective of any organisation is to earn profit.
However, an organisation does not always earn the same amount of profit every time due to
uncertain business conditions with respect to changes in product demand, prices of input and
competition level. There is always a condition of risk even when an organisation has employed the
best technique for production. Therefore, managing profit of an organisation helps in minimising
the risk factor and predicting the actual profit for future.
 Capital theory: Capital is a scarce resource of an organisation; therefore, it should be allocated
efficiently. Generally, managers, while managing capital, face issues related to the selection of
investment project and efficient allocation of capital. These issues are dealt with the help of the
capital theory. The capital theory helps managers in investment decision making, selecting
appropriate projects and capital budgeting.

1.3.2 Macroeconomics
Macroeconomics is the branch of economics that studies the economy as a whole. It analyses aggregates
of individuals, businesses, prices and outputs. It studies the impact of their choices on the aggregate or
total level of economic activities. For instance, it studies the aggregate level of employment, general
price level, aggregate savings and investment in the economy. Its main objectives are as follows:
 Full employment
 Economic growth
 Favourable balance of payment
 Stability of price
For example, the topic of general widespread recession due to COVID-19 pandemic and decline in
national economies comes under macroeconomics.
The macroeconomic theory deals with issues related to the general business environment in which an
organisation operates. The environmental issues can be associated with the economic, political and
social environment of a country. The economic environment of a country comprises the following
factors:
 The type of economic system of the country
 The pattern of national income, employment, saving and investment of the country
 The functioning of the financial sector of the country
 The structure and nature of foreign trade in the country
 The trends of labour supply and capital market strength of the country
 The economic policies of government
 The value system of society, property rights, customs and habits
 The political system of the country
 The functioning of private and public sectors
 The impact of globalisation on the country

1.3.3 Managerial Economics

The subject matter of economics comprises a number of concepts and theories. The application of these
concepts and theories in the process of business decision making is known as managerial economics.

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In other words, managerial economics undertakes the study of different economic tools that are used
in business decision making. Some of the popular definitions of managerial economics are given as
follows:
According to Mansfield, “Managerial economics is concerned with the application of economic concepts
and economics to the problems of formulating rational decision making.”
In the words of Spencer, “Managerial economics is the integration of economic theory with business
practice for the purpose of facilitating decision making and forward planning by management.”
According to Douglas, “Managerial economics is concerned with the application of economic principles
and methodologies to the decision-making process within the firm or organisation. It seeks to establish
rules and principles to facilitate the attainment of the desired economic goals of management.”
As per Haynes, Mote and Paul, “Managerial Economics refers to those aspects of economics and its tools
of analysis most relevant to the firm’s business decisions-making process. By definition, therefore, its
scope does not extend to macroeconomic theory and the economics of public policy an understanding
of which is also essential for the manager.”
From the above-mentioned definitions, it can be said that managerial economics serves as a link amid
the two disciplines, namely management and economics. The management discipline is concerned with
a number of principles that help in business decision making and enhancing the efficiency of business
organisations. Alternatively, economics is related to an optimum allotment of limited resources for
attaining the set objectives of a business organisation. Consequently, it can be said that managerial
economics is a particular discipline of economics that can be functional in business decision making of
organisations.

Scope of Managerial Economics

Managerial economics involves the application of different economic tools, theories and methodologies
for scrutinising business problems and decision making. These business problems can be connected to
demand and supply viewpoints of an organisation, level of production, pricing, market structure and
extent of competition. It helps an organisation in the following ways:
 Helps in taking decisions related to type of product, investment, pricing and level of production
 Enables managers to select production techniques and best course of action
 Helps organisations in making future decisions with respect to economic variables, such as price,
demand, supply and cost
 Applies different economic theories and tools to the real world business environment
 Enables organisations to determine and analyse factors that affect business decisions
 Helps in formulating business policies and assessing a relationship between different economic
variables, such as demand, supply, income, employment and profit

1.4 PROBLEM OF SCARCITY

The root of the economic problem is the scarcity of resources while our wants are infinite. This problem
exists in all economies in the world, whether they are rich or poor. To meet the infinite wants of the
people by using scarce resources while trying to meet the people’s desire to maximise gains, economies

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must try to achieve efficiency in production and distribution of resources. Societies and governments
face three types of problems in achieving efficiency in production and distribution, which are:
1. What to produce: The first question that emerges while producing and allocating resources is what
goods and services to produce.
This is the problem of the choice of commodity. There are two reasons for this problem:
a. Since resources are scarce, it is impossible to produce all goods and services that people want.
b. All goods and services have different values in the eyes of consumers from the perspective of
utility. Some goods and services give them more satisfaction (utility) than others.
Therefore, the problem of choice between goods and services arises because all goods and services
cannot be produced with the available resources, and all that is produced may not be purchased
by the consumers. The objective of solving this problem is to satisfy the maximum needs of the
maximum people.
The next question within this context will be ‘how much to produce.’ You need to find the quantity
of each product and service to be produced. The root of this problem also lies in resource scarcity.
If surplus goods and services are produced, there will be wastage of resources. Therefore, it is
important to efficiently allocate input resources.
2. How to produce: Once you have decided what to produce, you need to decide ‘how to produce it.’
This is the problem of the choice of technique. You have to decide the best combination of inputs
(labour and capital) to produce goods and services. The scarcity of resources adds to the severity
of the problem, as you cannot afford to waste them in employing wrong production techniques.
If resources were infinite, then you could use any combination of labour and capital to produce
a commodity. However, due to the scarcity of resources, you have to use the most economical
production techniques.
The problem ‘how to produce’ also arises because a specific quantity of a good or a service can be
produced with alternative combination of inputs. For example, a given quantity of wheat can be
produced by using more labour (men) and less capital (machinery). The same quantity of wheat
can also be produced by employing less labour and more capital. Such alternative technologies are
available for most goods or services. However, each alternative technology requires a different cost.
This gives rise to the problem of ‘how to produce.’
3. For whom to produce: This problem arises due to difficulties in matching the supply pattern with
the demand pattern. The aim is to provide the good or service to those consumers only who have the
ability and the willingness to pay for it, and that there is no surplus production leading to wastage.
To determine the demand pattern, firms often use consumers’ pattern of selection, preference and
income distribution. The income distribution, in turn, is determined by the employment pattern and
resource (or factor) prices. The resource prices are decided in the resource market by the demand
and supply forces for resources. The product resource prices and the number of resources gives the
share of each resource in the national income.
The resource owners who own a large quantity of expensive resources are able to claim a higher
share in the national output. These households relatively consume a bigger chunk of the national
output as compared to those who own low-priced resources. In a capitalist or a free enterprise
economy, the supply (or production) pattern should perfectly match with the demand pattern by
the ‘invisible’ hands of the market. However, that is seldom the case due to all pervasive market
imperfections, such as:
 Unemployment of some resources, particularly labour

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 Inefficient allocation and consumption of resources

 Coexistence of extreme poverty and wastage of resources
These problems of market imperfections exist in almost all the economies today.

1.5 OPPORTUNITY COST – AN ECONOMIC PROBLEM

As you already know, resources are scarce and we have infinite wants and needs. If we cannot have
everything we want, then we have to make choices. This creates the economic problem of ‘choice.’
Suppose you want to purchase new headphones, but your motorcycle also needs servicing. Now, you
do not have the money to do both, so you must decide what you would like to do the most. If you service
your bike, it means that you cannot buy headphones; you must give up this opportunity. The cost of
this lost opportunity is called opportunity cost. You can, therefore, say that the opportunity cost of
servicing your bike is buying headphones. This means that when you have chosen the bike, the next best
alternative is the headphones.
Opportunity cost is defined as the next best alternative that is given up when you make a choice. It is a
subjective issue. When you are making a choice, only you can identify the most attractive alternative.
However, it should be kept in mind that you may rarely know the actual value of the opportunity lost,
because that opportunity is the one you did not choose. For example, you give up on the opportunity of
watching television to read this chapter. Then, you will never know the exact value of the TV programme
you missed. You know only what you expected, which was that the value of reading this chapter is more
than the value of watching the television.
For example, assume that Vandana has planned to go for a vacation to Goa and wants to purchase some
clothes and footwear for her stay in Goa. However, she has a limited budget of ` 10,000. The average cost
of one garment is ` 1,000 and the average cost of one pair of footwear is ` 250. She has already selected
8 pairs of footwear and 8 garments. Then, she decides that since, she has to travel for 9 days, she should
have a new garment for each day. Now, if Vandana wants to buy an extra garment, the opportunity cost
in this case will be 4 pairs of footwear that cost ` 1,000.

Conclusion 1.6 CONCLUSION

 Economics is a science that understands and examines the economic behaviour of people.
 To meet their unlimited wants and maximise their gains, people make a number of choices on how
to use their resources and spend their earnings.
 Some economists believed economics as a study of money, while others had a notion that economics
deals with problems, such as inflation and unemployment.
 To simplify the concept, economics is defined by taking four viewpoints, namely wealth viewpoint,
welfare viewpoint, scarcity viewpoint and growth viewpoint.
 Some economists believed economics as a science, while others believed economics as a social
science.
 Conventional economics is divided into the two main branches, namely microeconomics and
macroeconomics.
 Microeconomics deals with the behaviour of individuals, businesses, commodities and prices at the
micro level.
 Macroeconomics is the branch of economics that studies the economy as a whole.

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 The application of economic concepts and theories in the process of business decision making is
known as managerial economics.
 The root of the economic problem is the scarcity of resources while our wants are infinite. This
problem exists in all economies in the world whether they are rich or poor.
 Opportunity cost is defined as the next best alternative that is given up when you make a choice. It
is a subjective issue.

1.7 GLOSSARY

 Capital: The human-made tools used in the economy, such as machinery, buildings and vehicles
 Economy: A set of activities involved in the production and distribution of goods and services for
the welfare of a human society
 Entrepreneurship: The bringing together of land, labour and capital into productive units
 Microeconomics: A study of economic problems of an individual consumer, organisation, or industry
 Macroeconomics: A study of problems of an economy as a whole

1.8 CASE STUDY: CHOICE MAKING BETWEEN ENVIRONMENTAL QUALITY AND

ECONOMIC GROWTH
Case Objective
This case study highlights the choice that the Canadian citizens had to make between economic
development as promised by the Conservative Party and greater economic growth as promised by
the New Democratic Party (NDP).
The former Prime Minister of Canada, Stephen Harper, was the head of the Conservative Party. In
Canada’s parliamentary system, he had walked a political tightrope for five years. During that time
period, he worked as the leader of the minority government.
His opponents were upset by some of the policies. One such policy was a reduction in corporate tax
rates. In 2011, his opponents strived for a no-confidence vote in parliament. It passed the parliament
tremendously. It not only brought down Harper’s government, but also forced national elections for a
new parliament.
This political victory was momentary as the Conservative Party won the elections held in May
2011. This party had appeared as the ruling party in Canada. This ruling party had allowed
Mr. Harper to continue practising the policy of deficit and tax reduction. This Conservative Party was
opposed by the New Democratic Party (NDP) and the moderate Liberal Party at that time.
These opposition parties strived for higher corporate tax returns and less deficit reduction
as compared to the ruling party. In 2010, the deficit had fallen by one-third under the rule of
Mr. Harper. At that time, he had promised a surplus budget by 2015. In 2011, the unemployment rate
in Canada was 7.4% as compared to the US rate, which was 9.1% in the month of May. In 2010, the GDP
growth rate was 3.1% in Canada. In the first quarter of 2011, the Bank of Canada planned for 4.2% of
growth rate as compared to the US which planned for 1.8% of growth rate. In 2008, Canada was dealing
with the state of recession. To deal with this state, Mr. Harper had made great efforts in 2010 and 2011.
These efforts helped him in producing substantial reductions in the deficit.

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All his efforts made Canadians decide and make a choice that resulted in lower taxes and less
spending. But this issue was not considered to be prominent in the campaign held in 2011. With
the development of huge oil deposits in Alberta, Canada is at the third place in the world for
oil reserves. The NDP promised to reduce the greenhouse gas emissions in Canada, whereas
Mr. Harper and the Conservative Party had promised to work towards the development of Canada’s
economic growth.
Source: https://2012books.lardbucket.org/books/macroeconomics-principles-v2.0/s04-economics-the-studyof-choice.html

Questions

1. What was the criterion for choice making in this case study?
(Hint: Economic growth and environment quality)
2. What was the aim of Mr. Harper?
(Hint: Reduction in tax and deficit and ultimately the growth of the economy)
3. Identify any ‘free’ election promises, which are promised to people during elections. Find out the
opportunity costs associated with them and identify who in the end actually paid for those things.
(Hint: Free healthcare, free transport, free water supply, etc.)
4. Do you think the free promises are actually free?
(Hint: Taxpayers have to pay for it)
5. Can you recall any desirable good or service for which you have to make choice?
(Hint: Luxury car, lavish house)

1.9 SELF-ASSESSMENT QUESTIONS

A. Essay Type Questions

1. Economics can be defined in a few different ways. At its core, economics is the study of how
individuals, groups, and nations manage and use resources. What is Economics?
2. Microeconomics is one of the two branches of the study of economics, and is often considered as a
foundation on which the other branch is built. Write a short note on microeconomics.
3. Macroeconomics, another branch of economics, attempts to assess how well an economy is
performing and understand how performance can be improved. Define macroeconomics.

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4. Scarcity is a basic economic problem that indicates the gap between limited resources and limitless
wants. Explain the problem of scarcity at length.
5. Opportunity cost is fundamental concept of economics that represent the potential benefits an
individual, investor or business misses out on when choosing one alternative over another. Discuss
opportunity cost as an economic problem in detail.

1.10 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS

A. Hints for Essay Type Questions

1. Economics is a study of reconciling unlimited wants with limited resources. Basically, economics
attempts to study how humans make decisions in the face of scarcity. Refer to Section Overview of
Economics
2. Microeconomics is the study of decisions made by people and businesses regarding the allocation of
resources, and prices at which they trade goods and services. Refer to Section Branches of Economics
3. Macroeconomics is the branch of economics that studies the economy as a whole. It analyses
aggregates of individuals, businesses, prices and outputs. Refer to Section Branches of Economics
4. To meet the infinite wants of the people by using scarce resources while trying to meet the people’s
desire to maximise gains, economies must try to achieve efficiency in production and distribution of
resources. Refer to Section Problem of Scarcity
5. Opportunity cost is defined as the next best alternative that is given up when you make a choice. It
is a subjective issue. Refer to Section Opportunity Cost - An Economic Problem

@ 1.11 POST-UNIT READING MATERIAL

 https://2012books.lardbucket.org/books/theory-and-applications-of-economics/
 https://www.infoplease.com/business/economy/overview-economics-what-economics-and-who-
cares

1.12 TOPICS FOR DISCUSSION FORUMS

 Discuss some microeconomics decisions that you make on a day-to-day basis.

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