Focus: Covering the key topics in Microeconomics in one shot.
Target Topics: Scarcity, Opportunity Cost, Difference between Micro and Macro, Central Problems, Production Possibility Curve (PPC), and other small topics.
Key Concepts and Definitions
Economics Terms
Economic: Money-related (e.g., economic motive means profit motive).
Economical: Affordable or cheap.
Economy: The area where people live and earn. Different economies have different ways of earning (e.g., USA, China, India).
Economics: The study of making choices in the presence of scarcity.
Scarcity: The situation where the demand for resources exceeds their supply, even at zero price.
Types of Economies
Market Economy (Capitalistic Economy): Economic decisions are made by the market forces (demand and supply), minimal government role. Objective: Profit maximization.
Socialistic Economy (Planned or Command Economy): Economic decisions are made by the government. Objective: Social welfare.
Mixed Economy: Combines elements of both market and socialistic economies. Both government and market forces make economic decisions. Example: India.
Economic Problems
The main economic problem is making choices due to scarcity.
Reasons for Economic Problems: Limited Resources, Unlimited Wants, Alternative Uses of Resources.
Central Economic Problems: What to produce, How to produce, For whom to produce.
Production Possibility Curve (PPC)
PPC Definition: A curve showing different combinations of two goods that can be produced with given resources and constant technology.
Assumptions: Limited resources, Full utilization of resources, Constant technology, Only two goods considered.
Features of PPC: Downward sloping (one good's production increase leads to another's decrease), Concave to origin (due to increasing marginal rate of transformation, MRT).
MRT: Change in production of good Y / Change in production of good X. It shows the opportunity cost of producing one more unit of a good.
Shifts in PPC: Due to changes in resources or technology. Rightward shift (resource increase or technology improvement), Leftward shift (resource decrease or outdated technology).
Economic Growth: Represented by an outward shift of the PPC.
Under-utilization of Resources: Points inside the PPC.
Full Utilization of Resources: Points on the PPC.
Unachievable Points: Points outside the PPC.
Micro vs. Macro Economics
Microeconomics
Definition: Study of individual economic units (e.g., a single commodity, individual income).
Focus: Price determination, individual markets, consumer and producer equilibrium.
Also Known As: Price theory.
Macroeconomics
Definition: Study of the economy as a whole (e.g., national income, aggregate demand).
Focus: National income, general price level, aggregate demand and supply.
Also Known As: Theory of income and employment.
Positive vs. Normative Economics
Positive Economics
Definition: Deals with facts and actual situations (what is).
Example: The current inflation rate is 6%.
Characteristics: Can be verified and tested.
Normative Economics
Definition: Deals with what ought to be (value judgments, opinions).
Example: Rich people should pay more taxes.
Characteristics: Cannot be verified, based on opinions and judgments.
Important Questions and Concepts for Exams
Economic Problems and their Reasons: Limited resources, unlimited wants, alternative uses.
Central Problems of an Economy: What to produce, How to produce, For whom to produce.
Production Possibility Curve (PPC): Features, MRT, shifts in PPC.
Micro vs. Macro Economics: Definitions, focus areas, other names.
Positive vs. Normative Economics: Definitions, examples, characteristics.
Conclusion
Review: Ensure understanding of key concepts for exams.
Application: Relate concepts to real-life economic scenarios.
Keep revising and practicing to solidify understanding.