ECONOMICS
• Economics is a social science that studies how individuals and society use scarce
resources to satisfy unlimited human wants.
• Economics deals with the activities of production, distribution, exchange, and consumption
of goods and services.
• Economics is broadly divided into Micro Economics, which studies individual units like
consumers and firms, and Macro Economics, which studies the economy as a whole such as
national income and inflation.
• Its applicability is very fast
MICRO ECONOMICS
• Micro Economics is a branch of economics that studies the behavior of individual economic
units such as consumers, firms, and industries.
• The term ‘micro’ means small.
• Micro economics deals with individual decision-making units and how they interact in the
market.
• It is also known as price theory because it explains how prices are determined.
IMPORTANCE
• Helps in efficient resource allocation
• Useful in business decision-making
• Explains price determination
Scope of Micro Economics:
1. Theory of Demand – consumer behavior and demand analysis
2. Theory of Production – input–output relationship
3. Theory of Cost – different types of costs
4. Market Structures – perfect competition, monopoly, etc.
5. Factor Pricing – wages, rent, interest, and profit
MACRO ECONOMICS
• Macro economics deals with the study of the economy as a whole.
• It focuses on aggregate variables such as national income, employment, inflation, and
economic growth.
IMPORTANCE
• Helps in understanding national income
• Useful in economic planning
• Helps control inflation and unemployment
• Guides government policies
,PRODUCTION POSSIBILITY CURVE (PPC)
Concept of Production Possibility Curve (PPC):
The Production Possibility Curve shows the various combinations of two goods that an economy can
produce by using its given resources and technology fully and efficiently. It reflects the problem of
scarcity and choice in an economy
The PPC is also known as the Production Possibility Frontier (PPF). A point on the curve
shows full utilization of resources, a point inside shows under-utilization, and a point
outside is unattainable.
Assumptions of PPC:
1. The economy produces only two goods.
2. Resources are fixed in quantity.
3. Technology remains constant.
4. Resources are fully and efficiently utilized.
5. Resources are not equally efficient in producing both goods.
Illustration with Example:
Suppose an economy produces guns and butter. If more resources are used to produce guns, fewer
resources will be available for butter. Thus, an increase in the production of guns leads to a sacrifice
(opportunity cost) of butter. The PPC slopes downward, showing this trade-off.
Butter
|
| •B
| •
| •
| •A
|•________________________ Guns
Explanation of the Diagram:
• The X-axis measures production of Guns
• The Y-axis measures production of Butter
• The curve AB is the Production Possibility Curve
Point A:
• More butter, fewer guns
• Resources are efficiently used
, Point B:
• More guns, less butter
• Shows trade-off between the two goods
• Any point on the PPC shows full and efficient utilization of resources
• Any point inside the curve indicates under-utilization of resources
• Any point outside the curve is unattainable with given resources
The downward slope of the PPC shows the opportunity cost—to produce more of one good,
the economy must sacrifice some amount of the other good.
1 PUBLIC GOODS
Public goods are those goods which are provided by the government and are meant for
collective consumption.
Characteristics:
• Non-excludable (no one can be prevented from using them)
• Non-rival in consumption
• Provided for social welfare
Examples:
National defence, street lighting, public parks.
2 PRIVATE GOODS
Private goods are goods which are owned and consumed individually.
Characteristics:
• Excludable
• Rival in consumption
• Price is charged for consumption
Examples:
Food, clothes, mobile phones.
3 MERIT GOODS
Merit goods are those goods which are socially desirable and whose consumption is
considered beneficial for society, but people may under-consume them if left to the
market.
Features:
• Provide social benefits
• Government encourages their consumption
• Economics is a social science that studies how individuals and society use scarce
resources to satisfy unlimited human wants.
• Economics deals with the activities of production, distribution, exchange, and consumption
of goods and services.
• Economics is broadly divided into Micro Economics, which studies individual units like
consumers and firms, and Macro Economics, which studies the economy as a whole such as
national income and inflation.
• Its applicability is very fast
MICRO ECONOMICS
• Micro Economics is a branch of economics that studies the behavior of individual economic
units such as consumers, firms, and industries.
• The term ‘micro’ means small.
• Micro economics deals with individual decision-making units and how they interact in the
market.
• It is also known as price theory because it explains how prices are determined.
IMPORTANCE
• Helps in efficient resource allocation
• Useful in business decision-making
• Explains price determination
Scope of Micro Economics:
1. Theory of Demand – consumer behavior and demand analysis
2. Theory of Production – input–output relationship
3. Theory of Cost – different types of costs
4. Market Structures – perfect competition, monopoly, etc.
5. Factor Pricing – wages, rent, interest, and profit
MACRO ECONOMICS
• Macro economics deals with the study of the economy as a whole.
• It focuses on aggregate variables such as national income, employment, inflation, and
economic growth.
IMPORTANCE
• Helps in understanding national income
• Useful in economic planning
• Helps control inflation and unemployment
• Guides government policies
,PRODUCTION POSSIBILITY CURVE (PPC)
Concept of Production Possibility Curve (PPC):
The Production Possibility Curve shows the various combinations of two goods that an economy can
produce by using its given resources and technology fully and efficiently. It reflects the problem of
scarcity and choice in an economy
The PPC is also known as the Production Possibility Frontier (PPF). A point on the curve
shows full utilization of resources, a point inside shows under-utilization, and a point
outside is unattainable.
Assumptions of PPC:
1. The economy produces only two goods.
2. Resources are fixed in quantity.
3. Technology remains constant.
4. Resources are fully and efficiently utilized.
5. Resources are not equally efficient in producing both goods.
Illustration with Example:
Suppose an economy produces guns and butter. If more resources are used to produce guns, fewer
resources will be available for butter. Thus, an increase in the production of guns leads to a sacrifice
(opportunity cost) of butter. The PPC slopes downward, showing this trade-off.
Butter
|
| •B
| •
| •
| •A
|•________________________ Guns
Explanation of the Diagram:
• The X-axis measures production of Guns
• The Y-axis measures production of Butter
• The curve AB is the Production Possibility Curve
Point A:
• More butter, fewer guns
• Resources are efficiently used
, Point B:
• More guns, less butter
• Shows trade-off between the two goods
• Any point on the PPC shows full and efficient utilization of resources
• Any point inside the curve indicates under-utilization of resources
• Any point outside the curve is unattainable with given resources
The downward slope of the PPC shows the opportunity cost—to produce more of one good,
the economy must sacrifice some amount of the other good.
1 PUBLIC GOODS
Public goods are those goods which are provided by the government and are meant for
collective consumption.
Characteristics:
• Non-excludable (no one can be prevented from using them)
• Non-rival in consumption
• Provided for social welfare
Examples:
National defence, street lighting, public parks.
2 PRIVATE GOODS
Private goods are goods which are owned and consumed individually.
Characteristics:
• Excludable
• Rival in consumption
• Price is charged for consumption
Examples:
Food, clothes, mobile phones.
3 MERIT GOODS
Merit goods are those goods which are socially desirable and whose consumption is
considered beneficial for society, but people may under-consume them if left to the
market.
Features:
• Provide social benefits
• Government encourages their consumption
