Introduction to Microeconomics Overview

Introduction to Microeconomics

Introduction:

• Today's chapter on 'Introduction to Microeconomics' will cover many key topics such as scarcity, opportunity cost, the difference between micro and macro, central problems, etc.
• Chapters from various authors' books will collectively be covered in this one chapter.
• Definitions of initial important terms:
  • Economic: Related to money
  • Economical: Cheap or affordable
  • Economy: Area where people earn money
  • Economics: Basic understanding of economics

Types of Economies

1. Market Economy (Capitalist Economy):
   • All economic decisions are made by the market
   • Based on price mechanism
   • Example: USA, Japan
2. Socialist Economy (Planned Economy):
   • All economic decisions are made by the government
   • Decided by emphasizing social welfare
   • Example: China, Russia
3. Mixed Economy:
   • Both government and market decisions matter in the economy
   • Example: India

Scarcity

• Meaning of scarcity: Being in short supply of something
• Definition: Situation where the demand for resources is high, and the supply is low

Economics

• Definition by Adam Smith: The science which studies wealth
• Modern definition: Decision making in the presence of scarcity

Central Problems

1. What to Produce: Which goods to make
2. How to Produce: Choice of production technology
3. For Whom to Produce: For whom to produce (rich/poor)

Opportunity Cost

• Meaning of opportunity cost: The value of the option that was missed
• Definition: Value of the second best alternative use of a commodity

Difference between Micro and Macro Economics

• Microeconomics:
  • Study of individual units
  • Price theory
  • Individual income, price, output
• Macroeconomics:
  • Study of the economy as a whole
  • Theory of income and employment
  • National income, general price level, total output

Production Possibility Curve (PPC)

• PPC: A curve showing the various possible combinations of production of two goods
• Characteristics:
  • Downward Sloping: Increase in the production of one good results in a decrease in the production of another
  • Concave to Origin: Increasing marginal rate of transformation (MRT)

MRT (Marginal Rate of Transformation)

• Definition: Change in production of good Y ÷ Change in production of good X.
• PPC is concave due to increasing MRT.

Shift in PPC

• Reasons for the shift:
  • Increase or decrease in resources
  • Change in production technology
• Rightward shift: Resource increase or improvement in technology
• Leftward shift: Resource decrease or outdated technology

Final Conclusion

• Cover all main concepts included in the syllabus
• Understand the importance of each concept and answer concisely, precisely, and in a straightforward manner in the paper.