BBA I Sem

Micro Economics (BMC103)

UNIT 1
Introduction to Microeconomics
-By
Mrs. Simran Agarwal
 WHAT IS ECONOMICS?

Economics is a study of optimum utilization of the scarce

resources in a manner such that the individual gain is
maximized at the micro level and social gain is maximized at
the macro level.
Economic problem is a problem of rational management of
resources or the problem of optimum utilization of
resources. It arises because: (i) resources are scarce, and (ii)
resources have alternative uses.
 MICROECONOMICS
Micro means small. Microeconomics deal with economic issues
related to small economics units:
(i) An Individual consumer
(ii) An Individual producer
(iii) An Individual industry and
(iv) An individual market.

Micro economics is that branch of economics which studies

economic problem ( or economic issues) at the level of an
individual like a consumer, or a producer.
 Three Vital Components of Microeconomics

Theory of Theory of
Consumer Producer Behavior
Behavior or The or The Theory of
Theory of Demand Supply

Theory of Price
Or
The Theory of
Determination of
Price through the
interaction of Supply-
Demand Forces
 MACROECONOMICS

Macroeconomics is that branch of economics which studies

economic problem (or economic issues) at the level of
economy as a whole.
 Three Vital Components of Macroeconomics

Theory related to Disequilibrium in Theory related to the Correction of

the economy: Disequilibrium in the Economy:
Theory related to Equilibrium in the
Economy (i) AD>AS leading to inflationary gap, (i) Monetary Policy
(AS=AD) and (ii) Fiscal Policy and
(ii) AD<AS leading to deflationary gap. (iii) Exchange Rate Policy.
MICROECONMICS AND MACROECONOMICS-THE
DIFFERENCES
Microeconomics
• Microeconomics deals with economic issues
related to small economic units: an individual
firm, an individual household or an individual
consumer.
• Microeconomics is basically concerned with
determination of price in the market.
Accordingly, it is often called as “The Theory of
Price”
• Study of microeconomics assumes that macro
variables remain constant. Thus, it is assumed
that the general price level is constant while
we are studying determination of price in the
individual market.
• Principal components of microeconomics are:
(a)Theory of Consumer Behavior, (b) Theory
of Producer Behavior and (c ) Theory of Price.
Macroeconomics
• Macroeconomics deals with economic issues at
the level of the economy as a whole.
• Macroeconomics is basically concerned with
determination of aggregate output and general
price level in the economy as a whole.
Accordingly, it is often called the “The Theory of
Income and Employment”.
• Study of macroeconomics assumes that micro
variables remain constant. Thus, it is assumed
that the distribution of GDP remains constant
when we are studying the level of GDP in the
economy.
• Principal components of macroeconomics are: (a)
Theory of related to equilibrium in the economy,
(b) Theory of related to disequilibrium and (c )
Theory of related to correction of disequilibrium.
 POSITIVE ECONOMICS

Positive economics deals with economic issues related to

past, present or future. It deals with such economic
situations which can be studied by using facts and figures.
 NORMATIVE ECONOMICS

Normative economics is the economics of ‘what ought to

be’. It deals with ‘opinions’ of the economists related to
economic issues or economic problems. Different
economists may offer different opinions on the solution to
an economic problem. Opinions involve value judgements.
 POSITIVE ECONOMICS AND NORMATIVE
ECONOMICS- THE DIFFERENCE
Positive Economics
• Positive economics deals with economic
issues related to past, present and future.
• Statements of positive economics relate
to ‘what was’, ‘what is’ and ‘what would
be’.
• Statements of positive economics are not
necessarily the statements of truth. These
may be true or false. Example: Somebody
says population of China, it is definitely a
positive statements. But, it is wrong. One
can verify it.
• Facts and figures (as elements of positive
economics) are verifiable for truth.
• Positive economics does not involve value
judgement.
Normative Economics
• Normative economics deals with opinions of
the economists related to economic issues or
economic problems.
• Statements of normative economics relate to
‘what ought to be’.
• Normative statements cannot be termed as
true or false. These statements involve
opinions only. Example: Somebody says that
old-age pensions should be stopped. It is just
an opinion.
• Normative statements are not verifiable to all.
• Normative economics involves value
judgement.
 Controlled or Centrally Free Economy or Market
Mixed Economy
Planned Economy Economy
• These are the economies • These are the economies • These are the economies
where the economic where the economic where the economic
activities (production, activities are controlled activities are governed by
consumption, investment by the market forces. the free play of market
and exchange) are firmly • Economic decisions are forces but are regulated
controlled by the driven by the motive of by the government.
government or some profit maximization. • Economic decisions are
central authority. • The consumer is driven by the motive of
• Economic decisions are sovereign. The consumer both profit maximization
driven by the motive of buys goods according to and social welfare.
social welfare. his choice. • The consumer is
• The consumer is not • Most resources are sovereign. However, PDS (
sovereign ( the central controlled ( or owned) by Public Distribution
authority decides what the people. The market System) ensures the
goods are to be produced determines the prices of supply of essential goods
for the people). goods and services. to the consumers.
 Controlled or Centrally Free Economy or Market
Mixed Economy
Planned Economy Economy
• Most resources are • Private sector dominates • Resources are controlled
controlled (or owned) by the economic activity. both by the government
the government. The and by the people. Prices
government decides at are determined by the
what price the goods are market. But, the
to be sold in the market. government regulates/
• Public sector dominates controls the prices of
the economic activity. essential goods.
• Both public and private
sectors dominate the
economic activity.
THANK YOU!!