Introduction to microeconomics

What is Economics -Definition of Economics

“Economics is the study of people in the ordinary business of life”

- Alfred Marshall

“Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses”

 - Lionel Robbins

“Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people” 

- Paul A. Samuelson

What is Economics:

•Economics is about choice and it is at the heart of all decision making.

•It is a social science as are psychology and anthropology and it is the study of how a society manages its scarce resources. It is about how people choose to use resources.

•Social sciences examine and explain human interaction. Economics explains how people interact within markets to get what they want to accomplish certain goals.

•It is often described as the study of how we use our limited resources to satisfy our unlimited material wants.

What is Economics:Scarcity and Choice

•Scarcity- It is a situation that arises when people have unlimited wants in the face of limited resources ( Non-renewable resources).

•As a result Economists are now trying to use Renewable resources.

•Sustainable development- The needs of the present are met without compromising the need’ s of future generations

•Choices-Involve how much time is devoted to work, to school, and to leisure.

•They also involve how many rupees are spent and saved, and how to combine resources to produce goods and services. The government should make choices with regard to expenditure with the utilization of tax revenue.

•Individuals, businesses and governments are all faced with making choices in situations where resources are scarce.

•More formally, economics is concerned with the material well-being of human societies.

Factors of production/Resource and Resource allocation

These are resources that are used in the production process to make goods

•Land- Gifts of nature

•Labour- Human resources

•Capital- All man made aids for further production

•Entrepreneurs- Manage and take risks in the business when introducing a new product.

Resource allocation

•Resources are limited and it is impossible to produce goods and services to satisfy all needs and wants of people.

•Economists have to decide the ways in which resources are allocated to different industries and occupations.

The three questions in Economics, Marginal Analysis and Opportunity costs

•All Economic choices could be arrived at succinctly by asking three big questions about the goods and services we produce.

•1. What to produce?

•2. How to produce?

•3. For whom to produce?

•The manner in which the basic problems of an economy are solved depends on the nature of the economic system or the economy ( free market economy, planned or mixed economy).

•Marginal Analysis is used in order to choose the best alternative from the alternatives available. Choices are made by evaluating the costs and benefits of each alternative.

•The opportunity cost in decision making is the value of the next best alternative that is foregone.