Micro Economics Chapter 01 INTRODUCTION TO MICRO ECONOMICS (Part I)



Economy: Economy is a system consisting of economic agents involved in economic activities. Economic agents means the producers, consumers and the government. Economic activity includes sale, purchase, production, consumption, investment etc.

The word 'economics' comes from two Greek words, 'eco' meaning home and 'nomos' meaning accounts

Economics: According to Lionel Robbins "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”

In simple words, Economics is a Science which deals with choice making where resources are limited, wants are unlimited and the limited resources have alternative uses.

This definition highlights following things-

1. Resources are scarce in comparison of wants.

2. Limited resources have alternative uses.

So economics is a rational use of limited resources in such a manner so that maximum satisfaction can be obtained with the scarce resources. This is also known as economising the use of scarce resources.

We can understand the problem of choice by looking at following example -

Suppose a consumer has only Rs.500. But he is willing to do many things. Now he has to make choice between alternatives uses of limited resources.

Scarcity: Scarcity means wants are more than the available resources. It simply implies that resources are limited & wants are unlimited. Resources are limited because wants always exceed resources even if resources increase, wants increase more than the resources. Scarcity is the root cause of 3 economic problems - What to Produce, How to Produce, For whom to Produce.

However, a commodity in short supply can't be called scarce if it has no demand. For eg. rotten fruits, etc.

Read further -
Central Problems of Economy

There are two branches of economics-
Micro and  Macro  economics

1. Micro  economics  is  the  study  of  individual economics units like study of individual buyer, individual firm, individual industry, etc.

2. Macro  economics  is  the  study  of  the aggregates. Under Macro-Economics, we study the economy as whole. It  deals  with  the  problems  of unemployment  inflation, economic growth, balance of  payment  and exchange rate.   

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