Notesale: Turn your study into money

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MICROECONOMICS
UNIT 1
INTRODUCTION
 Economics: Economics is the study of the problems
arising out of scarcity of resources at the micro and macro
level
...

 Economy: Economy is a system which provides people
with the means to work and earn a living
...

 Economizing of resources: It refers to making optimum
use of available resources
...

 Opportunity cost: The cost of next best alternative
sacrificed
...
Of units of
a commodity sacrificed to gain an additional unit of
another commodity
...

 Marginal rate of transformation: MRT is the ratio of units
of a commodity sacrificed to gain an additional unit of
another commodity
...
The government doesnot interfere in decision
making
...

 Mixed economy: It refers to that economy in which both
private as well as public sectors co-exist
...

 Economics is all about making choices in presence of
scarcity
...

 MRT OR MOC is also known as slopes of PPF
...

The codeword to learn this difference is MOTE G (basis)
...

Other
name
Tools

society as a whole
...

National Income

Demand and supply

Examples Individual income
Greek
word

Mikros

Makros

CENTRALLY PLANNED ECONOMY Vs MARKET
ECONOMY
BASICS

Meaning

Govt
...

Govt
...

Social welfare

MARKET ECONOMY

Planning
mechanism

Price mechanism

It refers to the
market economy in
which decisions
relating to what,
how and for whom
to produce are
taken by the market
forces of demand
and supply
...
doesn’t
interfere in the
decision making
...
As soon as one gets satisfied many
new wants come up
...

Resources are limited: The available resources are
not only scarce but also they are limited in supply
...

Resources have alternative uses: The resources are
not only scarce in supply but also they can be put to
several other uses
...

Macroeconomics depends on Microeconomics
Aggregate demand depends on demand of individual
households of the economy
...

An economy has to decide whether to produce war time
goods or peace time goods, luxurious goods or necessity
goods etc
...

HOW TO PRODUCE
According to this problem an economy has to make a
choice between techniques of production used in order to
produce goods and services with given resources
...

The GUIDING PRINCIPLE in solving this problem is that an
economy should opt that technique of production which
leads to maximum production at minimum cost
...

This problem is also known as DISTRIBUTION OF INCOME
...


OPPORTUNITY COST
Opportunity cost: The cost of next best alternative
sacrificed
EXAMPLE: Suppose, you are working in a bank at the
salary of Rs
...
Further suppose, you
receive to more job offers:
 To work as an executive at Rs
...
35,000
per month
...
e
Rs
...


PRODUCTION POSSIBILITY FRONTIER
It is also known as PRODUCTION POSSIBILITY CURVE,
PRODUCTION POSSIBILTY BOUNDARY, TRANSFORMATION CURVE,
TRANSFORMATION BOUNDARY, TRANSFORMATION FRONTIER
...


ASSUMPTION FOR PPF
 The amount of resources in an economy is fixed but
these can be transferred from one use to another
...

 The resources are fully and efficiently utilised
...
So, when resources are
shifted from production of one good to another, the
productivity decreases
...


PROPERTIES OF PPF
 PPC SLOPES DOWNWARDS: PPC slopes
downwards from left to right because from the
given resource, production of both the goods
cannot be increased
...
In other words,
more units of good X can be produced only by
producing less units of good Y
...
So when rsources are shifted fom one

use to another use, its marginal opportunity cost
increases
...

POSSIBILITIES
A
B
C
D
E
F
G

GUNS(in
units)
21
20
18
15
11
6
0

BUTTER(in
units)
0
1
2
3
4
5
6

MOC
--1
2
3
4
5
6

MRT
--1G:1B
2G:1B
3G:1B
4G:1B
5G:1B
6G:1B

Graph

CAN PPF BE A STRAIGHT LINE CURVE?

 When MOC is constant then PPF is a straight line
...

 When MOC is decreasing then PPF is a upward sloping
curve
...






When economy is producing on PPF then it indicates
fuller or efficient utilisation of resources
...

Any point outside the PPF shows unattainable
combination of output of 2 goods

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