Transcript Micro Economics

MICRO ECONOMICS
Chapter 1
Introduction to
Economics
Economics
• Greek word :
“Oikonomos” means to “manage the
house”
Or management of household especially
in those matters which are relating to the
income and expenses of the family.
Historical definition of economics:
Neo-Classical view Modern view
Classical view
Science of material
Science of scarcity
According to
Welfare.
i.e. limited resources
ClassicalEcono
mics is a
Dr. ALFERD
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ADAM
SMITH
Prof. ROBBINS
MARSHALL
economists,
.
Definition of Economics
There are three broad groups to Define Economics.
1. Classical view………..........science of wealth.
2. Neo-classical view………..science of material welfare.
3. Modern view………...........science of unlimited wants and
limited resources
Classical economist:
Western Philosophers
18th century
Name: Adam Smith
Birth: June 5, 1723
Scotland
Death: July 17, 1790
(age 67) Edinburgh,
Scotland.
Father of Economics
Wrote a book, entitled
“wealth of Nation” in
1776.
CLASSICAL VIEW
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•
•
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Western Philosophers
18th century
Name: Adam Smith
Birth: June 5, 1723
Scotland
• Death: July 17, 1790
(age 67) Edinburgh,
Scotland.
• Father of Economics
The Classical view:
•
The classical economists beginning with Adam
smith
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who is called the founder of economics, wrote a book
•
entitled “Nature
1776.
•
He define economics as, “Economics
wealth”.
and causes of wealth of nation” in
is a science of
Neo – classical economist:
Western Philosophers.
19th century philosophy.
Name: Alfred Marshall
Birth: July 26, 1842
(Bermondsey) London,
England.
Death: July 13, 1924
(Bermondsey) London,
England.
Wrote a book, entitled
“Principle of economics”
2 The Neo-Classical view:
• Dr. Alfred Marshall (1842-1924), wrote a book in 1890
in Cambridge which was entitled “Principle of
economics”.
• “He define economics as, economics is the 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 use of
material requisites of wellbeing.”
Explaination of Marshall Definition
1. Mankind in the ordinary business of life:
it means common man who lives in society and we will study
common way of life
2. Part of individual and social action:
it studies a single person as well as common way of life
of society.
3. Material requisites of wellbeing:
it shows general needs of people or society such as
food, cloth, shoes etc
Modern definition
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Lionel Robins was a famous British economist of
1920s, he was acting as a senior professor of
London school of economics, UK. He wrote a
book entitled by the name of “ Nature and
significance of economic sciences” in 1931,
where he defined economics in terms of some
realistic economic problems of human beings.
In the words of Robins.
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“ Economics is the science which studies human
behavior as a relationship between multiple wants
and limited means which have alternative uses”.
This definition points out the problem of scarcity and
choice in the economic life of people. There are
three main points of his definition which are given as
under.
1.
Multiple wants.
2.
Limited means and
3.
Alternative uses.
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Major points of Robins definition.
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Multiple wants. Multiple wants mean no limit to wants. human
wants are unlimited they keep on rising again and again. This
mean they do not come to an end even if they are satisfied
once.
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Limited resources . There is no limit to human wants, but the
means to satisfy these wants are limited in number. This means
that resources are limited in the sense that one cannot have as
many goods and services as he wishes for the satisfaction of
wants.
CONT`D
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Alternative uses.
The third point gathered from Robins definition is alternative
uses of limited resources. For example, a person has money
resource of 1000 Afs, with this limited resource of money
income he is able to do anything, he can buy cloths, entertain
friends or dine outside with his family. But, being a rational
consumer, he will choose the most optimum use of his limited
resource of income.
Economics circle
How Economy operate
Human beings
Unlimited wants
Human being Economic circle
satisfaction
Limited resources
Alternative uses
Of scarce resources
Branches of Economics
1- Micro Economics:
2- Macro Economics:
Micro Economics

Micro economics deals with a small individual
unit of the economy, like the price of a particular
commodity, consumption pattern of a particular
consumer, income of particular individual and
Producer.
Macro economics
• Macro economics:
Macro economics deals with total or aggregate level of output
aggregate level of consumption, aggregate level of investment,
aggregate level of employment.
Branches of Economics
ECONOMICS
Micro Economics
deals with the
individual units of
the economy, like;
Consumer
Producer
Price of a product
Macro Economics
deals with the
aggregate of the
economy, like;
Inflation
Unemployment
Aggregate
demand
Aggregate
consumption
METHODS OF ECONOMICS
The methods which economists use in their studies have three lev
Descriptive
Economics
Collection of
Facts about
Economic activity.
Theoretical
Economics
Formation of
Principles, laws,
Theories.
Policy
Economics
Formation of
Economic policy
Consumer Behavior under Micro
Economics:

The foremost topic that we study in micro economics
is the consumer behavior. Under this topic, different
consumption theories explain as to how much a
consumer his maximizes his total utility or
satisfaction by the allocation of his monetary
resources on different consumer goods.
Price determination Under Micro
Economics:

It explain as to how the interaction of demand and
supply determines the prices of different products. .
National Income Distribution uder
Micro Economics:
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Under this topic the distribution of income among
different factors of production in the form of wages,
rent, interest and profit is studied.
Importance of micro Economics:
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1: Utility Maximization:
It teaches us to purchase the required product in
most suitable quantities so that the total utility
obtained is maximized.
Cont……
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2:Allocation:
By the study of Micro Economics we come to know
how millions of consumers and producers allocate
their consumption and production resources in an
attempt to achieve their optimum level.
3: Price determination:
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The study of micro economics is highly helpful in
understanding the determination of relative prices
for the productive services rendered by different
factors of production.
4 : Optimization:

It also help to entrepreneur to achieve optimum
production point with their budget constrain , by this
they can maximize their profit or at least they will
minimize their loses.
5 : Welfare policies:

It also help to frame economic policies aimed at
achieving public welfare e.g. tax exemption on
poor, determination of rewards according to
qualification and productive capabilities etc.
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The End: