Introduction to Microeconomics-

Some introductory concepts

Faculty -CNQ
Economics , Macroeconomics and
Microeconomics
Economics is a social science that studies the choice
that people make as they scope with scarcity .
Macroeconomics is the branch of economics that
deals with the entire economy as a whole for e.g.- High
unemployment of a country is a macroeconomic topic.
Microeconomics is the branch of economics that
studies the functioning of individual markets ,
individual industries , individual firms and individual
households . For e.g. Talking about Mr. Rahim’s firm
employment structure.
Why we study Economics ?
To learn a way of thinking , the study of economics
helps us to make decisions.
To understand how the economy functions
To understand global affairs ( the global economy).
To be an informed voter .
Economics as a Social science
Positive Economics Normative Economics
 Without making judgments  It looks at the outcomes of
about whether the outcomes economic behavior and asks if
are good or bad they are good or bad and whether
they can be made better .
 A positive statement is about
 How things ought to be.
what is .
 Normative statements involve
 Positive statements can be value judgments and cannot be
checked by looking at the tested.
facts .  E.g. Government of Bangladesh
 E.g. Bangladesh is a should invest more in
developing country. agricultural sector .
Some commonly used terms in economics
Good –Anything from which individuals receive utility
or satisfaction.
Bad –Anything from which individuals receive
disutility or dissatisfaction. Good and Bad both can be
tangible or intangible.
Utility- The satisfaction one receives from the good.
Disutility-The dissatisfaction one receives from a bad.
Resources/Factors of production
It takes Resources to produce goods , resources are
divided into four broad categories
1. Land
2. Labor
3. Capital
4. Entrepreneurship
Some more key concepts –Scarcity, Choice
and Opportunity Cost
Scarcity – Resources are limited , wants exceeds the
resources available to satisfy them.
-There are unlimited wants and limited resources
 Scarce means limited.
 Because of scarcity , there is a need for a rationing
device . A rationing device is a means of deciding who
gets what quantities of the available resources and
goods.
 Scarcity implies competition.
Scarcity and Choice

Human wants are unlimited but resources are limited,

limited resources makes individuals or societies to
choose .
Scarcity implies choice. So the concept of choice
comes .
There is tradeoff between any two choices.
When we make choices the concept of Opportunity
cost arises .
Opportunity cost
A fundamental concept in Economics is the concept of
the opportunity cost- the most highly valued
opportunity or alternative forfeited when a choice is
made.
There is tradeoff between any two choices
E.g. – The opportunity cost of using resources for
medical care is the value of the other goods that could
be produced with the same resources.
The reason opportunity cost arises because resources
are scarce.
Economic way of thinking
Margins and Incentives
People make choices at the margin, which means that
they evaluate the consequences of making small
incremental changes in the use of their resources.
The benefit from pursuing an incremental increase in an
activity is its marginal benefit.
The opportunity cost of pursuing an incremental
increase in an activity is its marginal cost.
These are both best thought of as rates – how much
benefit or cost for a one-unit chang
Economic way of thinking
Margins and Incentives
Marginal benefit and marginal cost act as incentives —
inducements to take a particular action or not.
For any activity, if marginal benefit exceeds marginal
cost, people have an incentive to do more of that activity
If marginal cost exceeds marginal benefit, people have
an incentive to do less of that activity.
Economists seek to predict choices by looking at
changes in incentives, that is, in marginal cost and
benefit.