Introduction to

Microeconomic

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• The term economics refers to an area of
study under social science
• It deals with human behavioral attitudes
and perceptions toward material
resources
– In form of individual actions or collective
behaviors that are further shaped through
the individuals overall psychological,
physiological, cultural, religious, social and
environmental factors.

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What is economics?
The study of how
society chooses to
allocate its scarce
resources to the
production of goods
and services in order to
satisfy unlimited wants3
Branch of Economics
• Microeconomics
• Macroeconomics

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 Microeconomics
The branch of economics
that studies decision-
making by a single
individual, household,
firm, industry, or level of
government 5
 Macroeconomics
The branch of economics
that studies decision-
making for the economy
as a whole
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 Economics View
• Positive approach
• Normative approach

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Positive Economics
An analysis limited
to statements
that are verifiable

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Normative Economics
An analysis based on
value judgement

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 Definitions from
Conventional Perspective
• L. Robbins
– economics as a social science which
studies the behavior of mankind as a
relationship between ends and scarce
means which have alternative uses.

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• Case and Fair
– Economics is the study of how individuals
and societies choose to use the scarce
resources that nature and previous
generations have provided.
– The key word in this definition is choose
– Economics is a behavioral or social science.
– In large measure it is the study of how
people make choices. The choices that
people make, when added up, translate into
societal choices.

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• Hashim Ali
– There is no one definition of economics
– Basically economic is deals with how
scarce resources are allocated to
maximize the unlimited wants that we
wants to fulfill.

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• Welch and Welch
– The study of how scarce or
limited resources are used to
satisfy unlimited material wants
and needs;
– The study of decision making in a
world of scarcity

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• Economics is therefore a study of how
men make use of these limited
resources to fulfill their material or
worldly needs.
– What to produce The fundamental
economic
– How to produce
problems
– For whom to produce

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 Fundamental Economics
Problems
• What to produce
– Since resources are limited, we must
choose between different alternative
collection of goods and services that may
be produced.

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• How much to produce
– Once a decision has been made, one must
also decide how many quantities of that
good shall be produced.
• How to produce
– We have to determine the techniques of
production to be used
• For whom to produce
– How the national product is to be
distributed.

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• According to economists, resources are
fully and efficiently utilised if consumer
seek to maximise their satisfaction,
producers seek to maximise profit and
owners of economics resources seek to
maximise the returns from these
resources.
• Profits and reward is greatly influenced
by the type of economic system of the
nation – capitalism, socialism and mixed
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 What is meant by
scarcity?
The condition in which
wants are forever greater
than the available supply
of time, goods, and
resources
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• Arises due to the fact that the natural
resources are limited and our wants are
unlimited.
• Basic Economic Concepts – scarcity,
choice and opportunity cost
• Scarce – not enough goods and
services to satisfy the potential demand
• Choice – involve with alternative
• Opportunity cost – the alternative
forgone in order to enjoy the other item
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What does scarcity
force us to do?
It forces us to
make choices

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What are resources?
The basic categories
of inputs used to
produce goods and
services

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What are the three
categories of
resources?
Land
Labor
Capital
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 What is a
land resource?
A shorthand expression
for any natural resource
provided by nature

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 What is labor?
The mental and physical
capacity of workers to
produce goods and services

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 What is
entrepreneurship?
The creative ability of
individuals to seek profits
by combining resources
to produce innovative
products.
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 What is capital?
The physical plants,
machinery, and
equipment used to
produce other goods

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 What is
financial capital?
The money used to
purchase capital

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 Labor
Labor
Land
Land Capital
Capital

Entrepreneurship organizes
Entrepreneurship organizes
resources to produce goods
resources to produce goods
and services
and services

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What assumption is
always made when
testing a model?
ceteris paribus

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 What is
ceteris paribus?
A Latin phrase that
means that while certain
variables can change,
“all other things remain
unchanged”
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END

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