INTERMEDIATE MICROECONOMICS
Introduction
What is economics?
Economics is traditionally defined as the allocation of scarce productive resources among competing end
uses.
This definition brings out important economic concepts:-
(1) Scarcity
(2) Choice
(3) Opportunity cost
By examining the activities of consumers, producers, suppliers of resources, government, economists seek
to understand how resources are allocated.
Economics is divided into two branches: microeconomics and macroeconomics
Microeconomics
1. Deals with the choices of individuals
Individuals households or individual firms
2. Relative prices play an important role i.e. we study the response of consumers and producers to
changes in relative prices of domestic versus foreign cars, apples versus oranges e.t.c.
N.B
The major emphasis in microeconomics is on the decision making of individual consumers and producers (or
firms) and on a discussion of relatively homogenous products.
Macroeconomics
(1) Macroeconomics deals with economic aggregates – total consumption, total production e.t.c
We talk of GNP which is an aggregate over many different products.
(2) In macroeconomics we pay attention only to changes in the price level, interest rates e.t.c
In summary, the major emphasis in microeconomics is on the decision making of individual consumers and
producers, whilst in macroeconomics we study total employment, general price level, total gross national
product and other problems.
Productive Resources
Productive resources are usually classified under the following categories:-
(1) Natural Resources:-
Land, water, air, minerals, forests
(2) Human Resources
Skilled and unskilled labor
(3) Capital Resources
Machines, equipment, buildings
(4) Entrepreneurial Resources
A special category of human resources that consists of people who combine natural, human and capi
tal resources to produce output, take risks e.t.c
Entrepreneurs are the ones who make the decisions about organization of production.
1
Introduction
What is economics?
Economics is traditionally defined as the allocation of scarce productive resources among competing end
uses.
This definition brings out important economic concepts:-
(1) Scarcity
(2) Choice
(3) Opportunity cost
By examining the activities of consumers, producers, suppliers of resources, government, economists seek
to understand how resources are allocated.
Economics is divided into two branches: microeconomics and macroeconomics
Microeconomics
1. Deals with the choices of individuals
Individuals households or individual firms
2. Relative prices play an important role i.e. we study the response of consumers and producers to
changes in relative prices of domestic versus foreign cars, apples versus oranges e.t.c.
N.B
The major emphasis in microeconomics is on the decision making of individual consumers and producers (or
firms) and on a discussion of relatively homogenous products.
Macroeconomics
(1) Macroeconomics deals with economic aggregates – total consumption, total production e.t.c
We talk of GNP which is an aggregate over many different products.
(2) In macroeconomics we pay attention only to changes in the price level, interest rates e.t.c
In summary, the major emphasis in microeconomics is on the decision making of individual consumers and
producers, whilst in macroeconomics we study total employment, general price level, total gross national
product and other problems.
Productive Resources
Productive resources are usually classified under the following categories:-
(1) Natural Resources:-
Land, water, air, minerals, forests
(2) Human Resources
Skilled and unskilled labor
(3) Capital Resources
Machines, equipment, buildings
(4) Entrepreneurial Resources
A special category of human resources that consists of people who combine natural, human and capi
tal resources to produce output, take risks e.t.c
Entrepreneurs are the ones who make the decisions about organization of production.
1
