Micro & Macro Economics

1. Micro & Macro Economics

2. 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

3. 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

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

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.

6. ECONOMIC LAW

7. 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

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, can’t be tested in laboratory, Money is defective measuring rod Central Problem of an Economy: • What to Produce • How to Produce • For whom to produce

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

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

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

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

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

14. ELASTICITY OF DEMAND

15. 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

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

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

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

19. Characteristics of demand: • effective desire, • related with price, • related with time, Importance of demand: • Consumption • For produces • In exchange • In distribution • Public finance

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

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

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

23. FACTOR OF PRODUCTION

24. 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

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

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

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

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

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

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

31. PRODUCTION FUNCTION

32. 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

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

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

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

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

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