micro & macro economics

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Micro & Macro Economics

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Micro & Macro 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 . - PowerPoint PPT Presentation

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Page 1: Micro & Macro Economics

Micro & Macro Economics

Page 2: Micro & Macro 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

Page 3: Micro & Macro Economics

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

Page 4: Micro & Macro Economics

Limitation: Study of industrial units only Unrealistic assumption Study of a part of economy only Few specific problems only Limited study of economic problemsMacro Economics: Studying aggregates Study of whole economy system Study of total

Page 5: Micro & Macro Economics

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.

Page 6: Micro & Macro Economics
Page 7: Micro & Macro Economics

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

Page 8: Micro & Macro Economics

Nature: Inexact rules of complex sciences Statement of tendencies Not like statutory laws In completeWhy 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

Page 9: Micro & Macro Economics

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

Page 10: Micro & Macro Economics

Unemployment: without employmentType: Structural Invisible Under Open Technical Seasonal EducationCause: Decline of cottage & rural industries Slow speed of capital formation Heavy increase in population Defective education system Lake of employment policy

Page 11: Micro & Macro Economics

Suggestions for removing unemployment: Expansion of training facilities Increase in Government help Change in education system Growth of rural economy Employment oriented educationCauses for rapid increase in prices: Demand

factor: Deficit financing Increase in money supply Black money Rapid growth of population

Page 12: Micro & Macro Economics

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

Page 13: Micro & Macro Economics

Price Policy Income PolicyCause of High Birth Rate in India: Child Marriage Low level of education Lack of entertainment facilities Poverty Low level of family planning practice

Page 14: Micro & Macro Economics
Page 15: Micro & Macro Economics

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

Page 16: Micro & Macro Economics

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

Page 17: Micro & Macro Economics

Cross Elasticity of Demand: Measurement of change in demanded quantity to

change in priceType of Cross elasticity of demand: Zero, Negative, Positive:(a) >1 (b) <1, (c) =1 Infinitive

Page 18: Micro & Macro Economics

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 demandDemand: Effective desire, Means to fraction Willingness

Page 19: Micro & Macro Economics

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

Page 20: Micro & Macro Economics

Factors influencing demand: Number of consumer Price level Availability of substitutes Distribution of wealth Taste Fashion Possibility of change in price Climate AdvertisementLaw of demand: Relationship between quantity

demanded and the price

Page 21: Micro & Macro Economics

Assumption: Psychological factors of the consumer must

remain unchanged Money Income must be constant Must not be any substitutes Prices of other goods remain sameCharacteristics of the law of demand: Inverse relationship Price independent variable of depended variable Other thing being equal Quantitative statement Certain time period

Page 22: Micro & Macro Economics

Reasons underlying the law demand: Income effect Substitution effect Operation of the law of diminishing marginal utility Changes in the numbers of buyers New usesException of the law: Prestigious goods Highly priced goods Speculation Necessaries of life War and emergency

Page 23: Micro & Macro Economics
Page 24: Micro & Macro Economics

Production

Creation of utility Convert natural resources to useful things Satisfaction of wantsMethod of creation of Utility: Form Utility Place utility Time Utility What is not include in production: Domestic work Voluntary services Activities of leisure time

Page 25: Micro & Macro Economics

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

Page 26: Micro & Macro Economics

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

Page 27: Micro & Macro Economics

Merits of Division of labour: Increase in production Best quality Stillness Saving time and cost Control over cost of production More employment Mechanisation SpecialisationDemerits: Loss of pride Monotony Immobility Fear of over Production Evils of factory system

Page 28: Micro & Macro Economics

Capital: Yield of incomeCharacteristics: 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

Page 29: Micro & Macro Economics

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 savingsEntrepreneur: Organization Cooperate all the function of production and

control ove Fix the standard of production

Page 30: Micro & Macro Economics

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

Page 31: Micro & Macro Economics
Page 32: Micro & Macro Economics

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

Page 33: Micro & Macro Economics

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 returnNature: Homogeneous Non Homogenous Linear Homogenous Linear non Homogenous Non linear Homogenous Non Linear Non Homogenous

Page 34: Micro & Macro Economics

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

populationCharacteristics: Relation between population and food supply Checking of population increase Preference on preventive checks

Page 35: Micro & Macro Economics

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

Page 36: Micro & Macro Economics

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

Page 37: Micro & Macro Economics

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