Introduction To Microeconomics
Introduction To Microeconomics
INTRODUCTION
Commerce Batch 2023-2024
Our
SPEAKERS
01 Angel
02 Rishi
03 Aditi
04 Janki
The team
1. Production
2. Consumption
3. Investment or Capital Formation
Scarcity
Scarcity refers to the limitation if supply in relation to
demands for the commodity
1.scarcity of resources
2.unlimited human wants
3.Human wants also differ in priorities
4.Alternative Uses
DIFFERENCE BETWEEN
POSITIVE ECONOMICS AND
POSITIVE ECONOMICS
Question 1
1.
Question 2
2.
Question 3
3.
Opportnity
COST
microeconomics
AND MACROECONOMICS
MICROECONOMICS
[ PRICE THEORY ]
Adam smith is considered to be the founder of
the field of microeconomics. the term 'micro' has
been derived from a greek word 'mikros' which
means small. Microeconomics deals with analysis
of behaviour and economic actions of small and
individual units of the economy.
Example- individual income individual output
etc...its main tools are demand and supply
MACROECONOMICS
[INCOME THEORY]
The term macroeconomics has been derived
from the greek word 'makros' which means
large. It deals with the overall performance
of the economy like inflation, unemployment
etc....
It studies the behaviour of aggregates of
the economy as a whole
INTERDEPENDENCE OF
MICROECONOMICS AND
MACROECONOMICS
Economics is a single subject and the analysis
of an economy cannot be split into
compartments. It means microeconomics and
macroeconomics are 'interdependent'
central problems
OF ECONOMY
Production, distribution and disposition of
goods and services are the basic economic
activities of life. every society has to face
scarcity of resources because of this every
society has to allocate the scarce resources.
which leads to central problems faced by
every economy
1.What to produce
2.How to produce
3.for whom to produce
ALLOCATION OF
RESOURCES
Allocation of resources refers to the
problem of assigning the scarce resources
in such a manner so that maximum wants of
the society are fulfilled. it is studied under
3 heads -
1.What to produce
2.How to produce
3.for whom to produce
1.WHAT TO PRODUCDE
This problem involves selection of
good and services to be produced
and the quantity to be produced
of each selected commodity.
1.
Question 2
2.
Question 3
3.
Opportnity
COST
OPPOURTUNITY COST
Opportunity Cost is the cost of the next best
alternative foregone.
The amount of other goods and services, that
must be sacrificed to obtain more of any good,
is called the oppourtunity of that good.
Production Possibility
FRONTIER (PPF)
PRODUCTION POSSIBILITY
FRONTIER (PPF)
PPF refers to a graphical representation of all
the possible combintions of two goods that can
be produced with the given resources and
technology.
ASSUMPTIONS FOR PPF
1. Amount of resources in an economy is fixed
2. Only two goods can be produced
3. Resources are fully and efficiently utilised
4. Resources are not equally efficient in production
of all products
5. The level of technology is assumed to be
constant
PRODUCTION POSSIBILITY SCHEDULE
MARGINAL OPPORTUNITY
COST (MOC)
MOC refers to the number of units of a
commodity sacrificed to gain one additional
unit of another commodity.
MOC is always increasing
Productivity and efficiency of factors of
production decreses as they are shifted from
one use to another
MARGINAL RATE OF
TRANSFORMATION (MRT)
MRT is the ratio of number of units of a
commodity sacrificed to gain an additional
unit of another commodity.
Example: 20 units of guns and 1 unit of butter
(i.e 20G + 1B) can be produced by utilising the
resources fully and efficiently.
CHARACTERISTICS OF
PROPERTIES OF PPF
The two basic characteristics are:
1. PPF Slopes Downwards
2. PPF is Concave Shaped
As resources are transferred from one good to
another, less and less efficient resources have to
be employed.
WHETHER ECONOMY WILL
ALWAYS OPERATE ON PPF?
PPF only shows the maximum available possibilities, which an
economy can produce.
(a) From U to Z
(b) From U to Y
(c) From Z to V
(d) From X to Z
Question 2
(a) From U to Z
(b) From U to Y
(c) From Z to V
(d) From X to Z
Question 3
(a) It is constant
(b) It is zero
(c) It decreses
(d) It increases
Question 4
The graph here shows the production possibilities of two goods, R and S.
(a) It decreases
(b) It is zero
(c) It is constant
(d) It increases
Attainable and
UNATTAINABLE COMBINATIONS
ATTAINABLE
COMBINATION
It refers to those combinations at which economy can operate.
There can be two attainable options:
1) Optimum utilisation of resources:
2)Insufficient utilisation of resources
UNATTAINABLE
COMBINATION
An economy can never operate at any point outside the PPF (like X).
With the given amount of available resources, it is impossible for the
economy to produce any combination more than the given possible
combination.
PPF AND MRT
We can measure MRT on the PPF. The slope of PPF is a measure of the
MRT.
Since the slope of PPF curve increases as we move downwards along
the curve, the MRT also rises as we move downwards along the curve,
the MRT also rises as we move downwards along the curve.
CAN PPF BE A
STRAIGHT LINE?
PPF can be a straight line if we assume
that MRT is constant i.e., same amount
of a commodity is sacrificed to gain an
additional unit of another commodity.
CAN PPF BE A CONVEX
TO THE ORIGIN?
PPF can be convex to the origin if the MRT is decreasing,
i.e., less and less units of commodity are sacrificed to
gain an additional unit of another commodity.
PPF OF OPPORTUNITY
COST
The slope of the PPF indicates the opportunity cost of
producing one good versus the other good, and the
opportunity cost can be compared to the opportunity
costs of another producer to determine comparative
advantage.
CHANGE IN PPF
PPF is based on the assumption, that resources of an economy are fixed.
Changes in the resource availability lead to change in PPF. The change in PPF
indicates either an increase or decrease in the productive capacity of the
economy.
The change in PPF can be of two types:
1. Shift in PPF
2. Rotation of PPF
SHIFT IN PPF
The PPF can shift either towards right or towards left, when there is change in the resources or technology with
respect to both the goods.
1. Rightward Shift in PPF: When there is advancement or upgradation of technology and growth of resources.
2. Leftward Shift in PPF: When there is technological degradation and decrease in resources.
ROTATION IN PPF
It happens when there is a change in the productive capacity with respect to only one good.
1. Rotation of commodity on the X-axis: When there is a technological improvement or an increase in resources
for production of the commodity on X-axis.
2. Rotation for commodity on the Y-axis: When there is a technological improvement or an increase in resources
for production of commodity on Y-axis.
Unattainable Point
Inward Shift
Outward Shift
Attainable Point
Question 1
A lot of people died and many factories were destroyed in an
earthquake. How will it affect the PPF of the economy?
Question 1
A lot of people died and many factories were destroyed in an
earthquake. How will it affect the PPF of the economy?
1. Zero Tanks
2. PPC will shift towards right.
3. Point F
4. Point G
5. If the resources are fully and efficiently
utilizes, then economy can operate at any
point (like points A,B,C,D or E) on the PPC.
Thank you!