Micro & Macro Economics

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Micro & Macro Economics : Micro & Macro Economics Micro Economics : Micro Economics Definition - Studying a part of economy, a unit or particular, specific aspects Characteristics: Study of individual Determination of individual prices Small variables Immediate disposal of the problem Immediate decisions are possible Need and Significance : Need and Significance Essential for understanding total economic system Helpful in- solving of economic problems Deciding economic policy Economic decision of individual unit Enquiring about economic welfare Scope: Theory of Product Pricing Theory of Factor Pricing Theory of economic welfare Slide 4: Limitation: Study of industrial units only Unrealistic assumption Study of a part of economy only Few specific problems only Limited study of economic problems Macro Economics: Studying aggregates Study of whole economy system Study of total Slide 5: Need and significance: Formulation and successful of economic policy Regulation and control of entire economy Study large and complex developing micro economics, tracing of economic problems Scope: Theory of Income Output and employment Theory of Prices Theory of economic growth and development Theory of distribution Limitation: Aggregative study, Conclusions on mass level, No Means for Industrial units, Complex study. Slide 6: ECONOMIC LAW ECONOMIC LAW : ECONOMIC LAW Meaning of economic laws: Belonging to economic field, applicable throughout the world Characteristics: Statement of economic tendencies, Absolute, social, Based on imagination, Concerned with monetary measurement Slide 8: Nature: Inexact rules of complex sciences Statement of tendencies Not like statutory laws In complete Why Economic laws are less certain from physical laws: Based on human behavior, cant be tested in laboratory, Money is defective measuring rod Central Problem of an Economy: What to Produce How to Produce For whom to produce Slide 9: Problems in Indian economy: Unemployment, skill shortage Rising inflation Dependency on nature Illiteracy Poor infrastructure Poverty Environmental problems Causes of Poverty in India: Low level of economic development Increase in Population Under utilization of natural resources Illiteracy Backwardness of agriculture Lack of employment opportunities Slide 10: Unemployment: without employment Type: Structural Invisible Under Open Technical Seasonal Education Cause: Decline of cottage & rural industries Slow speed of capital formation Heavy increase in population Defective education system Lake of employment policy Slide 11: Suggestions for removing unemployment: Expansion of training facilities Increase in Government help Change in education system Growth of rural economy Employment oriented education Causes for rapid increase in prices: Demand factor: Deficit financing Increase in money supply Black money Rapid growth of population Slide 12:

Supply factor: Administered prices, Hoarding of essential articles, inadequate agriculture growth, Increase in commodity taxes, Anti Inflationary Policy: Monetary measures Fiscal Policy Action against Black Markets Distribution Policy Production Policy Population Policy Slide 13: Price Policy Income Policy Cause of High Birth Rate in India: Child Marriage Low level of education Lack of entertainment facilities Poverty Low level of family planning practice Slide 14: ELASTICITY OF DEMAND ELASTICITY OF DEMAND : ELASTICITY OF DEMAND Relationship between proportionate change in price and quantity, elasticity coefficient is last result Importance of Elasticity of demand: Determination of price under monopoly, Determination of price under discriminator monopoly Determination of price of product mix, Determination of price of public utilities, Determination of international trade policy Slide 16: Type of elasticity of demand: Income elasticity of Demand: related to disposable income Type of Income Elasticity of Demand: Zero Negative Positive Price Elasticity of Demand: Proportionate change with quantity to change in price, Ratio of change in quantity to change in price Methods of Measuring Price Elasticity: Total outlay or expenditure method Point Method Arc Method Slide 17: Cross Elasticity of Demand: Measurement of change in demanded quantity to change in price Type of Cross elasticity of demand: Zero, Negative, Positive:(a) >1 (b) <1, (c) =1 Infinitive Slide 18: Factors governing the elasticity of demand: Number and closeness of substitutes Significance of commodity in budgets Degree of necessity of goods Habits and temperaments of consumer Number of the use of commodity Period of time for demand Demand: Effective desire, Means to fraction Willingness Slide 19: Characteristics of demand: effective desire, related with price, related with time, Importance of demand: Consumption For produces In exchange In distribution Public finance Slide 20: Factors influencing demand: Number of consumer Price level Availability of substitutes Distribution of wealth Taste Fashion Possibility of change in price Climate Advertisement Law of demand: Relationship between quantity demanded and the price Slide 21: Assumption: Psychological factors of the consumer must remain unchanged Money Income must be constant Must not be any substitutes Prices of other goods remain same Characteristics of the law of demand: Inverse relationship Price independent variable of depended variable Other thing being equal Quantitative statement Certain time period Slide 22: Reasons underlying the law demand: Income effect Substitution effect Operation of the law of diminishing marginal utility Changes in the numbers of buyers New uses Exception of the law: Prestigious goods Highly priced goods Speculation Necessaries of life War and emergency Slide 23: FACTOR OF PRODUCTION Production : Production Creation of utility Convert natural resources to useful things Satisfaction of wants Method of creation of Utility: Form Utility Place utility Time Utility What is not include in production: Domestic work Voluntary services Activities of leisure time Slide 25:

Factor of production: Land Labour Capital Entrepreneur Land: Free gift by nature Characteristics: Fixed and limited Not produced Passive factor of production Immobile Value depends upon location Differs in fertility and situation Slide 26: Labour: Man Power Characteristics: Cannot be separated from laborers Perishable Seller of labour must Deliver it himself At a disadvantage in bargain Supply of labour changes slowly Intelligence and judgment Sufficient mobility Type: Skilled and unskilled Productive and non Productive Manual and mental Division of labour: Simple Complex Geographical Slide 27: Merits of Division of labour: Increase in production Best quality Stillness Saving time and cost Control over cost of production More employment Mechanisation Specialisation Demerits: Loss of pride Monotony Immobility Fear of over Production Evils of factory system Slide 28: Capital: Yield of income Characteristics: Secondary means of production Passive factor Man made means Supply of capital could be easily adjusted Dynamic and flexible Lack of stability Importance: Basis of production system Exploiting the resources Basis of planning Development of employment opportunities Basis of developed social living Slide 29: Function of capital: Secure continuing of production Raising the dignity of labour Helpful for capital formation Source of technical development Arranging marketing Providing raw materials Capital formation: Creation of saving, Effective mobilization of saving Act of investment of savings Entrepreneur: Organization Cooperate all the function of production and control ove Fix the standard of production Slide 30: Function of an Entrepreneur: Planning Organising Managing Bearing risk Innovation Provision of labour arrangement of labour Allocation of Income Decisions Qualities of an efficient entrepreneur: Far sightedness Correct Decisions Self confidence Alertness Efficiency Slide 31: PRODUCTION FUNCTION PRODUCTION FUNCTION : PRODUCTION FUNCTION Functional relationship between the quality of good and function of production Features: Substitutability Complementarily Specificity Assumption of production function: Particular period of time New change in technical knowledge State of technology Divisibility of factor of production Slide 33: Characteristics: Relation between input and output, Relation with the state of technology, Related for a time period, Free from study of price Different stage of return Nature: Homogeneous Non Homogenous Linear Homogenous Linear non Homogenous Non linear Homogenous Non Linear Non Homogenous Slide 34: Law of production: Law of variable Proportion Law of return to scale Malthusian Theory of population: Assumption: Human desire for bearing children remain constant Relationship between standard of living and population Characteristics: Relation between population and food supply Checking of population increase Preference on preventive checks Slide 35: Applicability of Malthusian theory to India: Fast speed of population growth Birth and death rate Not much control on increasing population Population more then production Optimum theory of population: Modern theory Rejected the Malthusian theory Instead of maximum population Slide 36: Assumption: Proportion of working population to total population remains constant, population of country increases, Population of country increases natural and capital resources and other technical knowledge remain the same, Criticism: Based on unreal facts Capital and natural resources are not fixed Not applicable to present world No Utility in formulation of fiscal policies Neglects social and institutional conditions