Microeconomics

Session 1

Basics of Economics

Dr. Pallavi Mody

Email: pallavimody@spjimr.org

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 Why Study Economics?

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 Is India an Emerging
Economic Power?
Is the World Economic Order changing?

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 World’s Top 10 countries by GDP in 2019
Gross Domestic Product (GDP)
Population (Exchange Rate) (PPP)

Country Growth Country Growth Per Capita

Country Rank Million (%) Rank $ Billion (%) Income $ Country Rank $ Billion
World 7,713 1.1 87,265 3.3 11,355 143,282
US 3 329 0.6 1 21,439 2.3 62,606 2 21,410
China 1 1,433 0.4 2 14,140 6.2 9,608 1 27,438
Japan 11 126 -0.3 3 5,154 0.9 39,306 4 5,794

Germany 16 83 0.05 4 3,863 0.7 48,264 5 4,558

India 2 1,366 1.0 5 2,935 7.2 2,036 3 11,436
UK 21 65 0.6 6 2,743 1.1 42,558 9 3,141
France 22 67 0.2 7 2,707 1.2 42,878 10 3085
Italy 23 60 -0.1 8 1,988 0.1 34,260 12 2,479
Brazil 5 211 0.8 9 1,847 2 8,968 8 3,350
Canada 38 36 0.04 10 1,730 1.4 46,261 17 1,901
GDP Numbers - Source: IMF WEO Oct 2019
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 Is India an Emerging
Economic Power?
Is India on the path to be $5 trillion economy?

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 We are living in a world that
offers innumerable opportunity
How do we participate?

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 We are seeking answers to….

• What will be the placement scene when I graduate in Dec 2020?

• Will my company be able to meet the 20% growth in the top line in the current year?

• Should I buy the car outright or on EMI?

• Should I buy the car now or after the budget?

• Should I keep my foreign exchange earnings in US dollar terms or convert in Rupees?

• Should I buy or sell stocks at this point?

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 What is macro economics?

• Macroeconomics is the study of economic environment. It is the study of the economy as a whole
that looks at the economy-wide phenomena.

• The measurement of GNI-GDP, growth in GNI-GDP, Inflation, Interest Rate, Exchange Rate,
Business Cycles

• Public Policies-Monetary, Fiscal, External Sector etc.

• The study of macroeconomics helps the individual to take a ‘view’ and strategize considering the
exogenous factors.

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 We are also seeking answers to….

• How should I spend my time? Study/Work/Relax

• Should I buy Apple iPhone or Google phone?

• What should be my strategy as CEO to improve the profitability?

• Increase the top line?

• Lower the cost?

• Should I work in Germany or France or India?

• Should I invest in Fixed Deposits or Mutual Funds or gold?

• Should I let out my vacant flat on rent or sell it off?

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 What is micro economics?

Microeconomics is the study of how individual households and firms make decisions and how they
interact.

The individuals attempt to optimize their positions as

• Consumer (Buyer)

• Producer (Seller)

• Owner of resources (Land, Labour, Capital and Enterprise)

The study of microeconomics provides a set of tools that help the decision making of maximizing
the gain and minimizing the pain.

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 What is the difference between
Micro and Macro Economics?

Microeconomics Macroeconomics
• How individuals (households + firms) • It is the study of economy wide
make decisions and how they phenomenon; inflation,
interact in specific markets unemployment, GDP growth
• Microeconomics provides ant’s point • Macroeconomics provides a bird’s
of view point of view
• One understands micro economics by • Macroeconomics is abstract, one
getting in the shoes of the individual understands the concepts largely
through media

Micro and Macro are closely intertwined. Success of a public policy depends upon the
millions of the decision makers and their reaction to the policy.
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 Can we Define Economics now?
Adam Smith (1776): Economics is a science of wealth which studies the process of
production, consumption and accumulation of wealth.

Alfred Marshall (1890): Economics is “a study of men as they live and move and
think in the ordinary business of life.”

Lionel Robbins (1932) “Economics is the science which studies human behavior as a
relationship between ends and scarce means which have alternative uses.”

1. It is all about money and wealth

2. It is about people
3. It is all about choice

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 Any Questions?

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