MICROECONOMIC ANALYSIS(SLIDE FOR N.E.T. EXAM)

PRESENTED BYPROF. S.D. BHARDWAJ (M.A.ECONOMICS

GOLD MEDALIST , DELHI UNIVERSITY)

REGISTER B.M.I.E.T. FAZILPUR, SONEPATBHAWANA BHARDWAJM.A. ECONOMICS AND M.B.A. FINANCEASSITANT PROFESSOR G.V.M. GIRLS

COLLEGE, SONEPAT.

THE TERM ECONOMICS IS DERIVED FROM TWO WORDS OF GREEK LANGUAGE, NAMELY ,OIKOS(HOUSEHOLD ) AND NEMEIN(TO MANAGE) , MEANING HEREBY HOUSEHOLD

MANAGEMENT. IT IS USED TO BE CALLED AS POLITICAL ECONOMY. INDIAN STATESMAN,CHANAKYA OR KAUTILYA IN HIS FAMOUS B OOK , “ARTH-SHASTRA”HAS EXAMINED B OTH KIND

OF ACTIVITIES ECONOMIC AND POLITICAL . GREAT GREEK PHILOSOPHER ARISTOTLE HAD USED THE TERM ECONOMICS

TO MEAN THE MANAGEMENT OF THE FAMILY AND THE STATE .THE TERM ECONOMICS WAS FIRSTOF ALL USED BY

DR. ALFRED MARSHALL IN 1890 IN HIS FAMOUS B OOK “PRINCIPLE OF ECONOMICS” . ECONOMISTS LIKE PROF.

SCHUMPETER,K.E . B OULDING ETC. HAVE GIVEN IT THE NAME OF ECONOMIC ANALYSIS. ADAM SMITH WAS FOUNDER OF

MODERN ECONOMICS. HIS FAMOUS B OOK “AN EQUIRY INTO THE NATURE AND CAUSES OF WEALTH OF NATIONS” WAS

PUBLISHED IN 1776 .

EVOLUTION OF ECONOMICS

IN 1933, PROF. RAGNAR FRISCH, THE FAMOUS ECONOMISTS OF OSLO UNIVERSITY, NORWAY,DIVIDE THE STUDY OF ECONOMICS INTO TWO PARTS:-

1. MICRO ECONOMICS(PRICE THEORY)2. MACRO ECONOMICS(THEORY OF INCOME AND

EMPLOYMENT).Development of Macro Economics took place after publication in

1936 of the well known book, “The General Theory of Employment, Interest and Money” by Lord J.M. Keynes. Follower of the philosophy of Lord J.M.Keynes, such as Hansen and Hicks etc. are popularly called Keynesian Economists. In the post-World War –II era, several economists like Paul. A. Samuelson, K.E. Boulding, Friedman, Patinkin etc.have modified and re-formulated Keynesian Economics and Neo-classical theories. The economists of this era are referred to as post-Keynesian Economics.

CLASSICAL ECONOMISTS:TILL THE END OF THE 18 TH AND 19 TH CENTURY(1776-1850), SEVERAL ECONOMISTS LIKE DAVID RICARDO, MALTHUS, J.B.SAY ETC. HAD FULLY SUPPORTED THE THOUGHTS OF ADAM SMITH.

NEO-CLASSICAL ECONOMICS:- FROM THE MIDDLE OF THE 19 TH CENTURY TO THE FIRST THREE OF THE 20 TH CENTURY (1850-1930) ECONOMISTS LIKE MENGER, WALRAS, COURNOT,MARSHALL, PIGOU ETC. HAD MADE SIGNIFICANT CONTRIBUTIONS OF THE DEVELOPMENT OF THE STUDY OF ECONOMICS WERE GREAT MATHEMATICIANS. MAKING USE OF THE PRINCIPLES OF MATHEMATICS, THE TECHNIQUE THEY ADOPTED TO ANALYSE ECONOMIC PROBLEMS IS POPULARLY KNOWN AS MARIGINAL ECONOMIC ANALYIS.THESE ECONOMISTS ARE KNOWN AS NEO-CLASSICAL ECONOMICS.

ECONOMICS IS THE STUDY OF THOSE ACTIVITIES OF HUMAN BEING WHICH ARE CONCERNED WITH

SATISFACTION OF UNLIMITED WANTS BY UTILIZING LIMITED RESOURCES.

IN THE WORDS OF SELIGMAN, “ ECONOMICS HAS SUFFERED MORE THAN ANY DISCIPLINE FROM THE

MALASE OF POLEMICS AND DEFINITIONS.”IN THIS RESPECT, BARBARA WOTTON'S REMARK,

“ WHENEVER SIX ECONOMISTS GATHER THERE ARE SEVEN OPINIONS.”

ACCORDING TO ZUTHEN, “ ECONOMICS IS A UNIFINISHED SCIENCE.”

DEFINITION OF ECONOMICS

ACCORDING TO CLASSICAL ECONOMISTS LIKE ADAM SMITH, J.B . SAY, WALKER, J.S.MILL ETC. ECONOMICS IS A

SUBJECT THAT STUDIES NATURE OF WEALTH AND ITS PRODUCTION, CONSUMPTION, EXCHANGE AND

DISTRIBUTION ETC.ACCORDING TO ADAM SMITH, “ECONOMICS IS AN

ENQUIRY INTO THE NATURE AND CAUSES OF WEALTH NATIONS.”

ACCORDING TO J.B .SAY, “ECONOMICS IS THE SCIENCE WHICH TREATS OF WEALTH.”

ACCORDING TO J.S. MILL , “ECONOMICS IS THE PRACTICAL SCIENCE OF THE PRODUCTION AND

DISTRIBUTION OF WEALTH.”

IS ECONOMICS A STUDY OF WEALTH?

E C O N O M I C S I S A S T U D Y O F W E A LT H O N LY: - E C O N O M I C S C O N F I N E S T O T H E S T U D Y O F W E A LT H . P R I M A R Y P L A C E I S G I V E N T O T H E S T U D Y O F W E A LT H A N D S E C O N D A R Y P L A C E I S G I V E N T O S T U D Y O F M A N. I N T H E W O R D S O F

A D A M S M I T H , T H E P U R P O S E O F T H E S T U D Y O F E C O N O M I C S I S T O I N C R E A S E T H E W E A LT H O F T H E N AT I O N

N AT U R E O F M E A N I N G O F W E A LT H -W E A LT H S I G N I F I E S M AT E R I A L G O O D S W H I C H A R E S C A R C E . M AT E R I A L G O O D S A R E TA N G I B L E ( C A N B E S E E N A N D T O U C H E D F O R E X A M P L E - C L O T H , F U R N I T U R E , G O L D , S I LV E R , B O O K E T C .

W H E R E A S N O N - M AT E R I A L G O O D S A R E N O N -TA N G I B L E ( W H I C H C A N N O T B E T O U C H E D O R S E E N ) F O R E X A M P L E -T H E S E R V I C E S O F A D O C T O R , L AW Y E R ,

T E A C H E R , D A N C E R E T C .C A U S E S O F W E A LT H : - E C O N O M I C S S E E K S T O I N V E S T I G AT E T H E C A U S E T H AT L E A D S T O I N C R E A S E O F W E A LT H . T H E R E A R E T W O WAY S O F I N C R E A S I N G W E A LT H :B Y I N C R E A S I N G T H E S U P P LY O F G O O D S T H R O U G H L A R G E - P R O D U C T I O N M A D E P O S S I B L E B Y T H E S AV I N G O F T H E C O M M U N I T Y.B Y I N C R E A S I N G T H E D E M A N D F O R G O O D S T H R O U G H E X T E N S I O N O F M A R K E T.E C O N O M I C M A N - E C O N O M I C M A N I S A M A N W H O F U L LY AWA R E O F H I S S E L F -I N T E R E S T A N D W H O M A K E S P E R S I S T E N T E F F O R T T O A C H I E V E H I S S E L F I S H E N D S T O T H E M A X I M U M . S U C H A M A N I S C A L L E D E C O N O M I C M A N.

FEATURES

IT HELPED TO DEVELOP ECONOMICS AS AN EXTENSIVE AND INDEPENDENT STUDY OF WEALTH.ADAM SMITH HAD

DEVELOPED AN INDEPENDENTAND IMPORTANT IN HIS FAMOUS BOOK “AN EQUIRY INTO NATURE AND CAUSES

OFWEALTH OF NATIONS.”ECONOMICS USED TO BE TREATED AS STUDY DEALING WITH WEALTH GETTING

FROM TRADE, AGRICULTURAL ACTIVITIES OF THE STATE. THE MAIN BEHIND THE STUDY OF ECONOMICS IS TO

INCREASE THE PROSPERITY AND WEALTH OF NATION AS WELL AS INDIVIDUAL.

MERITS

M O R E E M P H A S I S O N W E A LT H – A C C O R D I N G T O D E F I N I T I O N M O R E I M P O RTA N C E I S G I V E N T O W E A LT H T H A N T O M A N. W E A LT H TA K E S P R E C E D E N C E OV E R M A N. W E A LT H I S A M A E N S T O S AT I S F Y M A N ’ S

WA N T S. M A N N O T W E A LT H S H O U L D H AV E B E E N G I V E N G R E AT E R I M P O RTA N C E .

N A R R O W M E A N I N G O F W E A LT H - A C C O R D I N G T O D E F I N I T I O N O N LY TA N G I B L E M AT E R I A L G O O D S A R E I N C LU D E D W H E R E A S N O N -

M AT E R I A L G O O D S A R E E XC LU D E D F R O M I T. I N M O D E R N E C O N O M I C S W E A LT H I S A B R O A D E R C O N C E P T I T C OV E R S

M AT E R I A L G O O D S A S W E L L A S N O N M AT E R I A L G O O D S. E C O N O M I C M A N - W E A LT H D E F I N I T I O N I S B A S E D O N T H E

C O N C E P T O F E C O N O M I C M A N. A C C O R D I N G T O M A R S H A L L A N D H I S F O L L O W E R S S U C H A E C O N O M I C M A N W H O W O R K S F O R H I S

S E L F I S H M O T I V E S A L O N E I S N O T F O U N D I N L I F E . A C T UA L LY I N R E A L L I F E E C O N O M I C S A C T I V I T I E S O F A M A N A R E N O T

I N F LU E N C E D BY H I S S E L F- I N T E R E S T S B U T A L S O BY M O R A L , S O C I A L , R E L I G I O U S A N D O T H E R FA C T O R S. A M A N I S A S O C I A L

B E I N G BY N AT U R E R AT H E R T H A N E C O N O M I C M A N.

DEMERITS

NEGLECT THE WELFARE OF SOCIETY:- NO STUDYOF WELFARE OF THE SOCIETY. IT LAYS TOO MUCH EMPHASIS ON THE STUDY OF WEALTH-GETTING ACTIVITIES ALONE. IT PAYS NO ATTENTION TO THE ECONOMIC WELL-BEING OF THE SOCIETY BY PROPER USE AND WELL –BEING OF THE SOCIETY BY PROPER USE AND EQUITABLE DISTRIBUTION OF WEALTH.

NEGLECT THE PROBLEM OF SCARCITY AND CHOICE.- THE STUDYOF ECONOMICS COMPLETELY IGNORE THE TWO MAIN FEATURES NAMELY-SCARCITY AND

CHOICE. HUMAN WANTA ARE UNLIMITED.BUT ONLY THE GOODS AND SERVICES SATISFYING HUMAN RESOURCES ARE SCARCE HAVING SEVERAL USES THERE ARISES A PROBLEM OF CHOICE.

NEGLECT OF MEANS TO ATTAIN WEALTH:- ATTAINMENT OF WEALTH IS THE SOLE PURPOSE OF ECONOMICS, BUT IT DOES NOT SPECIFY THE MEANS WHICH SHOULD BE ADOPTED TO ACQUIRE WEALTH. WEALTH CAN BE OBTAINED THROUGH PROPER AND LAWFUL MEANS AND IT CAN ALSO BE OBTAINED THROUGH ILLEGAL AND ANTI-SOCIAL ACTIVITIES LIKE BLACK-MARKETING, TAX-EVASION, SMUGGLING ETC. THIS DEFINITION GIVES NO CLEAR INDICATION AS TO WHETHER WEALTH BE OBTAINED THROUGH LEGAL OR ILLEGAL MEANS.AS A MATTER OF FACT, ECONOMICS STUDIES EXCLUSIVELY THOSE MEANS OF WEALTH-GETTING WHICH ARE LAWFUL AND JUST.

NARROW SUBJECT-MATTER:-IT HAS BEEN RESTRICTED THE SCOPE AND SUBJECT-MATTER OF ECONOMICS.IT DOES NOT STUDY THE ACQUISTION OF MATERIAL GOODS ALONE. ACCORDING TO LORD J.M.KEYNES, STUDY OF ECONOMICS SHOULD EMBRACE MATERIAL GOODS AS WELL AS NON-MATERIAL SERVICES SUCH AS THAT OF A LAWYER, A TEACHER, A NURSE ETC.

MICROECONOMICS V/S MACROECONOMICS

The term microeconomics is derived from the greek word “mikros”, meaning “small” and the term “macros” meaning “large or aggregate economy as a whole.” Thus micro economics related to the study of individual economic units while the latter is a study

of the study of the economy as a whole.

MICRO ECONOMIC THEORY

MICROECONOMIC THEORY

PRODUCT PRICING

THEORY OF

DEMAND

THEORY OF PRODUCTIO

N AND COSTS

FACTOR PRICING

WAGES

RENT INTEREST

PROFIT

THEORY OF ECONOMIC VALUE

MACROECONOMICS

Macroeconomics is the study of aggregates or averages covering the entire economy, such as total employment, the national product or income, the general price level of the economy. Macroeconomics analyses and establishes the functional relationship between the large aggregates. Professor Boulding, “ Macroeconomics deals not with individuals quantities as such but with aggregates of these quantities; not with individual income but with the national income;not with individual prices but with the price level;not with individual outputs but with price level;not with individual outputs but with the national output.

SUBJECT MATTER OF MACROECONOMICS

MACROECONOMICS IS ALSO KNOWN AS THE THEORY OF INCOME AND EMPLOYMENT, OR SIMPLY INCOME ANALYSIS. IT DEALS WITH THE MAJOR PROBLEMS OF UNEMPLOYMENT, ECONOMIC FLUCTATIONS,INFLATION OR DEFLATION,INTERNATIONAL TRADE AND ECONOMY GROWTH.

MACRO ECONOMIC THEORY ANALYSIS

Macro Economic Theory

Theory of Income and employment

Theory of consumption function

Theory of investmen

t

Theory of general price

level and inflation

The theory of economic growth

Macro theory of

Distribution