micro economics chp 01
TRANSCRIPT
مبسم هللا الرحمن الرحی
contents
Chapter 1: introduction to microeconomics
Chapter 2: Consumer Behavior
Chapter 3: Demand
Chapter 4: Elasticity of Demand
Chapter 5: Supply
Chapter 6: Elasticity of Supply
Definition
• Micro is a Greek word which means small. Microeconomics is a branch of economics which deals in small or individual parts of economy such as individual income, consumption, demand, supply of individual firm or seller and consumer behavior etc., in other words we can say “The study of an individual unit, firm and industry is called micro economics.
Adam Smith’s Definition
• Adam Smith is the father of modern economics. He wrote his book in 1776 by the name of “The Wealth of Nations” defines it as “study of nature and causes of generating wealth of a nation” The early economists called economics, the Science of Wealth.
Main Points of the definition:
1. Study of Wealth:
Economics is the study of wealth only. It deals with consumption, production, exchange and distribution of wealth.
2. Causes of Wealth:
Economics studies the causes of wealth changes which means economic development. To increase wealth, production of material goods will have to step up.
3. Economic Man:
The science of wealth definition is based on the assumption of economic man. A man who is full aware of his self interest. The whole life of the man rotates (go around) the wealth.
Criticism1. More importance to Wealth:This definition has given more importance to wealth than man. Wealth has been given the primary and man only secondary place. In fact wealth is only the means to satisfy the human wants.2. Narrow Meaning of Wealth:In this definition “wealth” means only material goods. The non material services of a doctor, teacher, engineer and solder are not taken as wealth. But the modern economists use the “wealth” for both goods and services.3. Neglect of Man’s Welfare:This definition gives no importance to the economic welfare of the society. It lays too much emphasis on accumulation (increase) of wealth. It pays no attention to the equal distribution of wealth and its use for the welfare of the society. 4. Neglect of Means to Attain Wealth: This definition makes the earning as the main purpose of economics.
Marshall’s Definition: (1842-1924)
Marshall was famous economist at Cambridge University who wrote a book “Principles of economics” in 1890. Marshall defines economics in the following words.
“Economic is the study of mankind in the ordinary business of life, it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites (fundamentals) of well-being”
Main Points/Features:1. Ordinary Business of Life: -
By ordinary business of life, Marshall means those economic activities of a man which are mostly concerned with getting and using of wealth.
2. Importance to the study of man: -
Welfare definitions have given more importance to the study of man than to wealth. Wealth is the means to satisfy human wants.
3. Study of social man: -
Economics is a social science of house men and women who live in society.
4. Study of material Requisites: -
Economics studies those activities of the man which are closely connected with the attainment and with the use of material goods (basic) concerning human welfare.
Criticism1. Study of immaterial goods: -
Robbins has attacked the “welfare” on the ground that it studies only material goods and ignores non material goods.
2. Welfare is vague and difficult to measure: -
Robbins has also objected to the word “welfare” in the welfare definition. According to Robbins the concept of welfare is vague (not clear) and it is difficult to measure.
3. Economics is not a social science, but a human science:
Robbins does not agree with Marshall that economics is a social science. Robbins regards economics as a human science.
4. Impractical: -
This definition is impractical. The assumption that those activities of the man are studied in it which is concerned with his well-being is wrong.
5. Limited Scope: -
This definition has limited scope of economics to the study of material goods only which promote human welfare.
Robin’s Definition
Robin’s an English economist gave a new definition in his famous book, “Nature and Signification (meaning) of Economic Science” in 1932.
According to Robbins, “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
Conti…
Human behavior
Unlimited Wants Scarce Means Alternative Uses
Problem of Choice
Merits of Robbins definition
1. Science Definition:
Robbins definition is more scientific, since it is not based on artificial classification of wants, as material and non Material.
2. Universal definition:
Robbins definition is wider in context. It takes into account all types of human wants, material or non material, as well as of types of persons either living in society or individually.
3. Wider Scope:
This definition has enlarged the scope of economics. In economics we study all types of economics activities related to scarcity and choice. Economics now include the study of material and non material. They may or may not promote welfare.
Major Economic Problems
Introduction:
Wants of human-beings are unlimited but most of the means satisfying these wants are scarce. It is impossible for an economy to produce every thing for each individual because no economy possesses unlimited resources. It becomes necessary for every economy, therefore, to make a choice regarding the efficient use of
the available resources of the economy.
Definition:
“The problem concerning the allocation of the resources to different uses is called economic problem or problem of choice”. The economic problem lies in making the best possible use of the available resources so as to get the maximum satisfaction.
Economic problem arises due to the following three causes:
1. Unlimited Wants:
2. Limited or Scarce Means:
3. Alternative Uses:
Fundamental Problems facing an Economy
1. What to produce:
2. How to produce:
i) Labor intensive Technique:
ii) Capital intensive Technique:
3. For whom to produce:
i)Personal distribution:
ii)Functional distribution:
4. Are the resources economically used?
5. Full Employment of Resources:
6. Problem of growth:
Some basic concepts of economicsi) Goods
ii) Services
iii) Needs & Wants
iv) Resources
v) Scarcity of Resources
vi) Allocation of Resources
Subject Matter of Economics
i) Unlimited Wants
ii) Economic Activities
iii) Reward
iv) Acquisition of Goods & Services
v) Satisfaction
Is economics science or an art? SCIENCECollection of facts through observation or experiments.
i) Positive Science
Facts collected and accepted, there is no critical evaluation in economics (for example there are 30% unemployment in Afghanistan).
ii) Normative Science
Analysis of facts are made. How these facts ought to happen e.g. Govt. should provide job to every citizen.
ART
When the facts that are studied in a science are followed in real life, it makes the science an art.
For example, a doctor studies science, but after becoming doctor he puts his knowledge into practice by attending patients.
Branches of Economics
Micro Economics
Micro means millionthpart. In Micro Economics we studythe small part of an economy. Forexample the demand of a singleperson or a firm, consumption ofa person etc.
Macro Economics
Macro means large. In MacroEconomics we study economy as awhole. Here we discuss aggregatedemand and aggregate supply,inflation, consumption function,foreign trade, etc.
Scarcity
It is said that economics is a science of scarcity and choice, it is true because scarcity lies at the root of all economic problems.
Scarcity means that society’s resources are limited and cannot produce all goods and services they wish to have.
So we can say economics is the study of how people manage the scarce resources to make best choices.
Important Features of Scarcity
1. Scarcity is a universal fact
2. Scarcity is relative term
3. The test for scarcity is the price of a good
4. Scarcity forces choice
5. Scarcity creates conflicts
conclusion
Economics is the social science that deals with how society allocates its resources among its unlimited wants and needs.
The End