ARUNAV AGARWAL

MICRO ECONOMICS
PRESENTATION
Serial no. 23
MODERN DEFINITION OF ECONOMICS

 According to Lionel Robbins “Economics is a science

which studies the human behavior as a relationship
between ends (wants) and scarce means (limited
resources) which have alternative uses.”
 NATURE OF ECONOMICS

 Economics is a Science: Economics creates an effort

to find a relationship between cause and effect and
provides measurable results.
 Normative nature : Economics involve valued
judgements. It deals with what ought to be.
 Economics is an art : It involves practical application
of rules and principles for the attainment of certasin
objectives.
 CONSUMER’S SURPLUS

 According to Marshall “ excess of the price which a

consumer would be willing to pay rather than go
without a thing over that which he actually does pay”
is called consumer surplus.
 CONSUMER SURPLUS = what a consumer is ready to
pay – what he actually pays
 SPECIAL TYPES OF INDIFFERENCE
CURVES

 Two indifference curves never intersect each other .

 An indifference curve always slopes downwards
towards right.
 An indifference curve is convex to origin.
 Indifference curve will not touch either axis.
 INCOME EFFECT

The increase in demand on account of increase in real

income is known as income effect . When the price of
the commodity falls the consumer can buy the same
quantity of the commodity with lesser money or he can
buy more of the same commodity with same amount of
money. Example – if the income of consumer increases
then he/she shall purchase more quantity of food grains
at same price.
LAW OF VARIABLE PROPORTIONS

The law states that as we increase the quantity of one input which is
combined with other fixed inputs the marginal physical productivity of
the variable input must eventually decline. An increase in some inputs
relative to other fixed inputs in a given state of technology causes
output to increase.
• Total product is the total output resulting from the efforts of all the
factors of production combined together at any time .
• Average product is the total product per unit of the variable factor .
• Marginal product is the change in total product per unit change in
the quantity of variable factor.
LAW OF VARIABLE PROPORTIONS
 RICARDO’S RENT

According to Ricardo’s theory “ rent is that portion of

the produce of the earth which is paid to the land lord
for the use of original and indestructible powers of soil”
While explaining this theory of rent Ricardo states that
rent is differential surplus . They are different in both
fertility and location . Due to this difference the superior
land earns a profit or saving in comparison to inferior
lands.
DEGREES OF ELASTICITY OF DEMAND

1. UNITARY ELASTIC DEMAND : When the change in quantity demanded equals

to change in price it is known as elastic demand.

2. ELASTIC DEMAND : When the change in quantity demanded is more than the
change in price it is known as elastic demand.
3. INELASTIC DEMAND : When change in quantity
demanded is less than change in price it is known as
inelastic demand.
4. PERFECTLTY ELASTIC DEMAND :When the price of
the commodity remains constant and demand changes
it is known as perfectly elastic demand.
 5. PERFECTLY INELASTIC DEMAND : When the
demand for the commodity remains constant with
change in its price it is known perfectly inelastic
demand.