Welcome to Microeconomics
Dr. Adnan Maqbool
[email protected]
[email protected]
Preferable Book
• Campbell R. McConnell, Stanley L. Brue and Sean
M. Flynn. Microeconomics: Principles, problems and
policies (19th Edition) Published by McGraw-
Hill/Irwin 10020. New York, 2012.
• N. Gregory Mankiw (Professor of Economics at
Harvard University) Fifth Edition, Principles of
Microeconomics Published in USA, 2009.
http//[N._Gregory_Mankiw]_Principles_of_Microeco
nomics,_(BookZZ.org).pdf
Preferable Book
David M. Winch, Microeconomics: Problems and Solutions,
Oxford University Press. (Latest Edition)
Muhammad Hussain Choudhry, Economic Theory Volume 1,
Caravan Book House, Lahore 2002.
Ruffin and Gregory, Principles of Economics, Illionois: Scott
Foresman and Company, (Latest Edition).
Samuelson and Nordhaus, Economics, New Delhi, Tata
McGraw Hill, (Latest Edition).
Scott and Nigro: Principles of Economics, New York;
Macmillan Publishing Co., Inc., (Latest Edition)
People’s wants are numerous and varied.
Biologically, people need only air, water, food, clothing,
society and shelter.
But in modern societies people also desire goods and services
that provide a more comfortable or affluent standard of living.
We want bottled water, soft drinks, and fruit juices, not just
water from the creek.
We want salads, burgers, and pizzas, not just berries and nuts.
We want jeans, suits, and coats, not just woven reeds.
We want apartments, houses, not just mud huts.
And, as the saying goes, “That is not the half of it.” We also
want flat-panel TVs, Internet service, education, homeland
security, cell phones, health care, and much more.
Fortunately
Society possesses productive resources, such as labor and
managerial talent, tools and machinery, land and mineral
deposits.
But the blunt reality is that our economic wants far exceed
the productive capacity of our scarce resources.
We are forced to make choices.
This unyielding truth underlies the definition of economics,
which is the social science concerned with how individuals,
institutions, and society make optimal (best) choices under
conditions of scarcity.
Economics
Economics as a subject came into being with the
publication of very popular book in 1776,
“An Enquiry into the Nature and Causes of Wealth of
Nations”,
written by Prof. Adam Smith.
At that time it was called Political economy
It remained operational at least up to the middle
part of the 19th century.
Meaning
The word ‘Economics’ was derived from the Greek
words
‘Oikos’ (a house) and
‘Nemein’ (to manage),
which meant managing a household, using the limited
money or resources a household has.
Definition
“Economics is the study of choice, in which
individuals make choices in everyday life by using
scarce resources”
"Economics is the study of the use of scarce
resources that have alternative uses.“
That's the classic definition of economics.
Basically, there are people, and people need
resources to fulfil their desires.
Two Main Types of Economics
Microeconomics is a branch of economics that
studies the behavior of individuals and firms in
making decisions regarding the allocation of scarce
resources and the interactions among these
individuals and firms.
Macroeconomics is the branch of economics
concerned with large-scale or general economic
factors, such as interest rates and national
productivity.
The term ‘Micro’ and ‘Macro’ economics have been
introduced by Prof. Ragnar Frisch of Oslo University
during 1920’s.
The word micro means a millionth part.
In Greek mickros means small. Thus microeconomics
deals with a small parts of the whole economy.
Introduction to Microeconomics
“Economics is the study of choice, or how
individuals make choices in everyday life”
“Economics is the study of how to allocate
limited resources to unlimited wants”
A hard reality is that most things that are desirable are
unfortunately scarce.
Economics is the study of how individuals, whether
they are parents, employees, or business owners, make
choices when they are limited in their ability to satisfy
their wants and desires.
Means and ends are the bases on which the whole
science of economics is built.
(a) ‘Ends’ are the needs/wants, which every human
being desires to satisfy. Want is an effective desire
for a thing, which can be satisfied by making an
effort for obtaining it.
(b) We have unlimited wants and as one want gets
satisfied another arises.
(c) For instance, one may have the desire to buy a car or
a flat. Once the car or the flat is purchased, the
person wishes to buy a more spacious and
designable car and the list of his wants does not stop
here but goes on one after another.
(a) As human wants are unlimited, we have to make a
choice between the most urgent want and less urgent
wants.
(b) Thus the problem of choice arises. That is why
economics is also called as a science of choice.
(c) If wants had been limited, they would have been
satisfied and there would have been no economic
problem.
(b) Means or resources are limited. Means are required
to be used for the satisfaction of various wants.
For instance, money is an important means to satisfy
many of our wants. As stated, means are scarce (short in
supply in relation to demand) and as such these are to be
used optimally.
In other words, scarce or limited means/resources are to
be used in a way that maximum satisfaction may be
gained. We should not make waste of the limited
resources but utilize them very wisely.
(c) Scarce means the resources are limited as well as
have alternative uses.
It means that a commodity or resource can be put to
different uses.
For instance, if we have a hundred rupee note, we can
use it either to purchase a book or a fashionable clothe.
We may use it in other unlimited ways as we like.
Economics focuses on the process and consequences of
making decisions.
In reality, economists are often most interested in
understanding how actual people and organizations
reach their decisions.
Economists describes different types of decision makers
into three types of economic agents.
An economic agent is any individual, group of
individuals, or organization that participates in the
allocation of scarce resources to unlimited desires.
The three types of agents that economists analyze are
households, firms, and governments.
A household is a person or group of people that acts
as a single decision-making unit, typically in the area
of consumption
A firm is an organized entity that produces goods or
services for households and other firms.
Examples include the corporations that many of us
would recognize, such as General Motors
A government is an organization that provides goods
and services to households and firms, provides
redistribution of income, and provides a structure of
laws in which firms and households can operate with
some level of certainty. Governments are organized,
operated, and managed by households
The Economist
Economics as a subject came into being with the
publication of very popular book in 1776, “An Enquiry
into the Nature and Causes of Wealth of Nations”,
written by Prof. Adam Smith.
At that time it was called Political economy, which
remained operational at least up to the middle
part of the 19th century.
Famous Names in Economics
Some famous names in Economics:
Adam Smith (1723 - 1790)
Thomas Robert Malthus (1766 - 1834)
Jean-Baptiste Say (1767 - 1832)
David Ricardo (1772 - 1823)
Karl Marx (1818 - 1883)
Irving Fisher (1867 - 1947)
Ludwig von Mises (1881 - 1973)
John Maynard Keynes (1883 - 1946)
Friedrich Hayek (1899 - 1992)
Joan Robinson (1903 - 1983)
Milton Friedman (1912 - 2006)
James Tobin (1918 - 2002)
Amartya Sen (1933 - Present)
Paul Krugman (1953 - Present)
https://historyplex.com/famous-economists
https://www.thecompleteuniversityguide.co.uk/courses/economics/the-ten-most-influential-economists-of-all-
time/?entry=1
Microeconomics
Microeconomics is the part of economics concerned with
decision making by individual customers, workers,
households, and business firms.
At this level of analysis, we observe the details of their
behavior under a figurative microscope.
We measure the price of a specific product, the number of
workers employed by a single firm, the revenue or
income of a particular firm or household, or the
expenditures of a specific firm, government entity, or
family.
Macroeconomics
Macroeconomics examines either the economy as a
whole or its basic subdivisions or aggregates, such as
the government, household, and business sectors.
An aggregate is a collection of specific economic units
treated as if they were one unit.
Therefore, we might lump together the millions of
consumers in the Pakistan economy and treat them as if
they were one huge unit called “consumers.”
Economy
An economy is a comprehensive mechanism that
facilitates the allocation of scarce resources to
competing uses.
An economy decides three things:
(a) What goods are produced and in what quantities
(b) How goods are produced, and
(c) The distribution of the goods produced.
Market economy:
(also known as capitalism) is an economy in which
individual households and firms determine the
allocation of resources and the government plays an
extremely limited role.
Centrally Planned Economy:
(also known as a command economy) is one in which a
single individual or small group of individuals
determines the allocation of resources, and individual
firms and households have little control over what is
produced, how goods are produced, and the distribution
of these goods
A Mixed Economy
is one in which government plays a more active
role in the market process, including regulation,
standardization, taxation, and income
redistribution.
Households and firms still have some control
over what is produced, how goods are produced,
and the distribution of those goods; however, the
government also influences these decisions.
Factors of Production
are items used to produce goods and services. There are
four major factors of production:
1- Land: All natural resources: gold, coal, plutonium,
etc.
2- Labor: Effort, mental and physical, of human beings
3- Capital: All equipment, tools, factories, and goods
used in production
4- Entrepreneur:
Branches of Economics: In general, there are two
major branches of economics.
1- Microeconomics: is the study of individual markets,
how individual agents interact within those markets, and
how individual economic agents make decisions.
Micro economists would perhaps investigate the
unemployment rate in a particular industry, or the
number of employees hired by a particular firm, or
whether a firm will purchase new technology at
prevailing interest rates, individual savings etc.
For example, if we study the price of a particular commodity
instead of studying the general price level in the economy,
we actually are studying microeconomics.
More Precisely, microeconomics studies the behavior of
individual units of an economy such as consumers, firms, and
industry etc.
Therefore, it is the study of a particular unit rather than all units
combined together. Micro economics is also called Price theory.
Macro economics:
is the study of national and global economic activity.
Macroeconomists focus on trends at the national or
regional level.
These issues would include the overall unemployment
rate, overall interest rates, and whether the national
income of a country is increasing or decreasing,
