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# CHAPTER – 1 INTRODUCTION TO MICROECONOMICS

❖ Microeconomics:
o Microeconomics is the branch of economics concerned with the
study of economic behaviour of individual economic units.
o It studies the behaviour of individual households, firms, industries,
product pricing and factor pricing as well as allocation of
resources.

❖ Partial equilibrium:
o Partial equilibrium is the technique used by microeconomics to
study the equilibrium position of an individual economic units.
o Partial equilibrium analysis assumes the condition of ‘Ceteris
Paribus’, i.e. ‘other things being constant’.

❖ Economic efficiency:
o Economic efficiency involves efficiency in production, efficiency in
consumption as well as efficiency in the direction of production.
o Microeconomics examines under what condition the economic
efficiency can be achieved.

## ❖ Individual economic unit:

o The smallest part of an economy such as individual households,
firms, industries is concerned as individual economic unit.
o Microeconomics studies the economic behaviour of an individual
economic unit.

❖ Resource allocation:
o Resource allocation means utilization of resources for the
production of various goods and services.
o The study of microeconomics is mainly confined to resource
allocation. Microeconomics explains how relative prices of
commodities and factors of production determine resource
allocation.

1) Features of microeconomics:
a. Study of individual units:
b. Partial equilibrium:
c. Analysis of resource allocation and economic efficiency:
i. Resource allocation
ii. Economic efficiency
d. Slicing method:
e. Price theory:
f. Use of marginalism principle:

## 2) The scope and subject matter of microeconomics.

Microeconomic basically deals with.
I. Theory of product pricing.
II. Theory of factor pricing.
III. Theory of economic welfare.
a. Product pricing:
b. Factor pricing:
c. Theory of welfare:
a. Efficiency in production.
b. Efficiency in consumption.
c. Efficiency in the direction of production i.e. overall economic
efficiency.

3) Importance of microeconomics:

## a. To understand the working of free market economy:

b. Explains price determination and allocation of resources:
c. It helps businessman in decision making:
d. Useful to government:

4) Agree or disagree:

Reasons:

## i. The term microeconomics is derived from the Greek word

‘mikros’ which means a small or millionth part. Thus,
microeconomics studies the individual economy unit.
ii. Microeconomics studies the behaviour of individual households,
firms, industries, product pricing and factor pricing as well as
allocation of resources.

Reasons:

## i. Income theory lies within the scope of microeconomics.

ii. Microeconomics explains how the prices of a variety of goods and
services are determined. Thus, theories of demand, production
and cost fall within the scope of microeconomics.

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