✡️Meaning of Economics
Economics is a subject matter that focuses on the rational management of scarce
resources in a manner such that our economic welfare is Maximised.
✡️Difference between Micro and Macro Economics
Micro Economics Macro Economics
Micro Economics studies economic Macro economics studies economic
relationships or problems at an individual relationships or problems at the level of the
level. economy as whole.
It is statistically concerned with the Macro economics is basically concerned with
determination of output and price for an the determination of aggregate output and
individual firm or industry. general price level in the economy as whole.
Micro Economics is also known as price Macro economics is also known as income
theory. theory.
✡️Problem of scarcity and choice
Scarcity is a situation demand exceeds supply even at zero price.
Eg. In a government hospital where medicines are given free, if demand exceeds
supply, it is called Scarcity.
We all have scarce resources and unlimited wants, selecting one alternative and not
selecting another is problem of choice.
Problem of scarcity is present at all levels of decision making.
✡️Central problems of economy
1. What to produce and in what quantity?
Whether to produce consumer goods like rice, sugar or capital goods like machines,
equipment or whether to produce combination of both.
Since resources are scarce, if we have greater production of good X we will have lesser
production of good Y.
Producer must maintain a balance between good X and good Y to achieve maximum
gains.
2. How to Produce?
It means to organise production that is making a choice between two types of
production, that is Labour intensive or Capital intensive.
Labour intensive techniques use more of labour and less machines.
Capital intensive techniques use more of capital and less of labour.
3. For whom to produce?
The economy has to take this decision because there are different types of buyers.
Producers would like to produce goods for the rich because it gives them a larger profit,
but this would increase gap between the rich and the poor.
Therefore, government has to intervene and regulate the resources so that the goods
are produced for the poor by imposing taxes and subsidies.
✡️Production Possibility Curve (PPC)
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It is a curve that shows alternative production possibilities between two goods ie rice
and wheat, given the amount of resources and techniques of production.
PPC is also called as Production Possibility Frontier or Production possibility Boundary or
Transformation Curve.
✡️Opportunity Cost
It is defined as a value of factor in it’s next best alternative use.
Eg. Mr X is given 1 hectare of land. A package of input has following production
possibilities.
A) production of wheat : value of output = 5000. (opportunity cost)
B) production of sugarcane : value of output = 6000.
✡️Consumer equilibrium
Consumer is at Equilibrium when given his/her income and the market price of different
goods and services. He/she plans the expenditure on different goods and services in
such a manner that he/she gets maximum satisfaction.
✡️Utility
Utility is defined as the want satisfying power of a good.
The quantity of the commodity by virtue of which it satisfies human wants, these are
assumed to be measured in terms of cordinal numbers like 1,2,3… theses numbers are
called Utils.
There is no standard yard stick to measure utils.
✡️Relationship between Total utility and Marginal utility
1. Total utility
Total utility is the sum total utility derived from the consumption of all the units of a
commodity during a period of time.
TU = MU₁ + MU₂
2. Marginal Utility
Marginal utility is the addition to total utility derived from consumption of an additional
unit of commodity.
MU =¿
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