Micro Economics Scope Nature and Scope By Dr. V. S. Karpe Dept. of Economics Sarvajanik Arts & Commerce College, Visarwadi, Tal. Navapur, Dist. Nandurbar. (MS)

Definition and Scope of economics Economics is defined as a body of knowledge or study that discusses how a society tries to solve the human problem of scarce resources and unlimited wants

Basic Assumptions Ceteris Paribus ( All other things remaining equal) Rationality (Consumers and producers measure and compare the costs and benefits of a decision before going ahead)

Types of economic analysis Micro and Macro Positive and Normative Short run and long run

Micro and Macro economics Microeconomics is the study the economic behaviour of an individual, a firm or an industry. Study of product pricing, consumer behaviour, factor pricing, study of firms, location of the industry. Macro economics is the study of aggregates such as the overall conditions of the economy such as total production, total consumption, total saving, total investment. Study of national income, balance of trade and investment, employment and economic growth

Short run and long run Short run is a time period not enough for consumers and producers to adjust completely to any new situation. (Usually capital is fixed and labour is variable) Long run represents the time period for the business in which all factors of production may be varied.

Positive and normative Positive economics establishes a relationship between cause and effect. ( The distribution of income in India is unequal) Normative economics is concerned with questions involving value judgments. (The distribution of income in India should be equal)

Basic concepts in managerial economics Resource allocation – What to produce? How to produce ? For whom to produce. Opportunity cost – It is what we give up when we make a choice. Production possibilities curve – it shows the maximum output of two goods or services that can be produced given the current level of resources available and maximum efficiency in production

Basic concepts in managerial economics Marginal utility is the amount by which consumer well-being or total utility changes when the consumption of a good or service changes by one unit. Marginal revenue is the change in total revenue which results from increasing the quantity sold by one unit Marginal cost is the change in the total cost which results from increasing the quantity produced by one unit

Basic concepts in managerial economics Business objectives – Profit maximization, maximization of sales revenue. Risk and uncertainty – Risk occurs in economic decision making where there is an element of chance or injury . Discounting – is concerned with the fact that the costs and benefits arising in future years are worth less to us than costs and benefits arising today

Basic concepts in managerial economics Perfectly competitive market – numerous small sellers each offering identical products with complete freedom of entry and exit. Each firm is a price taker rather than a price maker. ( eg. Wheat) Monopolistically competitive market – many sellers , degree of product differentiation exists.( eg retailing through the use of branded products, packaging and advertising) Oligopolistic competition – a small number of relatively large firms which are constantly aware of each other’s actions and reactions regarding price and competition.( eg oil companies) Monopoly – Sole supplier, faces no competition , is a price maker . Eg electricity distribution companies

Monopolistic Competition Market Structure Perfect competition Monopolistic Competition Oligopoly Monopoly Market attributes Number of buyers and sellers Very high Very many Few suppliers One supplier Degree of product differentiation Nil Very low Usually high Market entry and exit barriers High