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Can U Convert Into To A Proper Text - ? Chapter 1

This document provides an introduction to microeconomics, defining it as the study of how individuals and societies allocate limited resources to meet unlimited wants. It outlines the central economic problems of what, how, and for whom to produce, and introduces key concepts such as opportunity cost and the Production Possibility Frontier (PPF). The document emphasizes the importance of understanding economic principles to make informed decisions regarding resource allocation.

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2 views4 pages

Can U Convert Into To A Proper Text - ? Chapter 1

This document provides an introduction to microeconomics, defining it as the study of how individuals and societies allocate limited resources to meet unlimited wants. It outlines the central economic problems of what, how, and for whom to produce, and introduces key concepts such as opportunity cost and the Production Possibility Frontier (PPF). The document emphasizes the importance of understanding economic principles to make informed decisions regarding resource allocation.

Uploaded by

Eva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 1: Introduction to Microeconomics

– Full Explanation
1. Economics: Meaning and Definition

Economics is the study of how people use limited resources to satisfy their unlimited
wants. It focuses on the choices individuals and societies make due to scarcity and how
resources are allocated.

Definition by Lionel Robbins:


“Economics is the science which studies human behaviour as a relationship between
ends and scarce means which have alternative uses.”

2. Types of Economics

Microeconomics:
Microeconomics deals with individual economic units such as a consumer, a firm, or an
industry. It focuses on issues like the price of a single product, the income of an
individual, or the demand for a particular good.

Macroeconomics:
Macroeconomics examines the economy as a whole. It studies aggregate issues such as
national income, unemployment, inflation, and economic growth.

3. Why Study Economics?

Studying economics helps us:

 Understand how scarce resources are allocated.

 Make wise choices regarding resource use.

 Learn how to maximize satisfaction (for consumers) or profits (for producers).

 Analyze and find solutions to economic problems.

4. Basic Economic Problems (Central Problems)

Every economy faces three central problems:


1. What to produce?
Deciding which goods and services (essentials vs. luxuries) and how much of each
to produce.

2. How to produce?
Choosing the method of production—whether to use more labor (labor-intensive) or
more machines (capital-intensive).

3. For whom to produce?


Deciding who will consume the goods—whether they will go to the rich, the poor, or
both.

5. Causes of Economic Problems

Economic problems arise due to:

 Unlimited Human Wants: People always desire more goods and services.

 Limited Resources: Resources like land, labor, and capital are finite.

 Alternative Uses: Resources can be used in different ways, leading to choices.

6. Opportunity Cost

Opportunity cost is the value of the next best alternative that is forgone when a choice is
made.

Example:
If you have ₹100 and decide to buy a book instead of watching a movie, the opportunity
cost is the enjoyment you would have received from the movie.

7. Production Possibility Frontier (PPF)

The Production Possibility Frontier (PPF) is a graph that shows all possible combinations of
two goods that can be produced using all resources efficiently. The PPF is typically
concave to the origin, reflecting increasing opportunity cost.

Important Concepts in PPF

 On the curve: Efficient use of resources.

 Inside the curve: Under utilization of resources (e.g., unemployment).


 Outside the curve: Not possible with current resources.

 Shift of the curve: Indicates a change in resources or technology.

 Movement on the curve: Choosing different combinations of goods with the same
resources.

Production Possibility Schedule (PPS)

Combination Good A Good B

A 0 15

B 1 14

C 2 12

D 3 9

E 4 5

F 5 0

This schedule shows increasing opportunity cost as we move from combination A to F.

8. Central Problems and the PPC

 What to produce?
Choosing a point on the PPC determines the combination of goods to produce.

 How to produce?
The production method affects costs and thus the position on the PPC.

 For whom to produce?


Depends on who can afford or needs the goods produced.

9. Basic Assumptions of the PPC

1. Resources are fixed.

2. Technology is constant.

3. All resources are fully and efficiently used.

4. Only two goods are being produced.


10. Scarcity and Choice

Because resources are limited, we must make choices. Choosing one good means
sacrificing another, which leads to the concept of opportunity cost. Scarcity leads to
choice, which leads to opportunity cost, and ultimately to the central problems of an
economy.

Super Short Revision Points

1. Economics: Study of managing limited resources for unlimited wants.

2. Microeconomics: Focus on individuals; Macroeconomics: Focus on the whole


economy.

3. Central Problems: What, How, and For Whom to produce.

4. Opportunity Cost: Next best alternative given up.

5. PPC: Graph showing production choices and opportunity cost.

6. PPC is concave: Due to increasing opportunity cost.

7. Inside curve: Underutilization; Outside curve: Not possible.

8. Shift: Change in resources; Movement: Change in choice.

------------------------------------------------------FIN--------------------------------------------------------------

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