Microeconomics short notes
Microeconomics
Positive economics
This is the use of economics to describe the activities which are happening in the world
It is also called “what is” or “descriptive”
Normative economics
This is the use of economics to recomment changes. It means advicing on how things “shoud be”
It is also called prescriptive analysis
The market economy
An economy that is entirely run by the market forces demand and supply and there is no government involvement in the economy
A pure market economy may not exist in the real world
Price mechanism
Refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein
It is the buyers and sellers who actually determind the price of a commodity
This is also called the invisible hand (Adam Smith)
Command economy
An economy entirely run by the government
The government decides:
What to produce
How much should be produced
The price at which the goods will be sold at
Mixed market economy
An economic system that has both the free market system and the government involvement in the economy
Assumptions
Assumptions are important in the study of economics because in the real world a lot of things at the same time
Therefore we assume that certain things are constant
Ceteris paribus – all other things are held the same or constant
Production possibility frontier
This is a graph that indicates the various production possibilities of two commodities when resources are fixed
Opportunity cost
The next best alternative foregone
This is because resources are limited
If several things are given up the opportunity cost is the best thing given up
Trade off
This means giving up one thing to obtain something else
The trade off causes the opportunity cost
Opportunity cost vs Trade off
Trade off simply means sacrificing what you have to get something else
Opportunity cost refers to comparing cost and benefits of
Positive economics
This is the use of economics to describe the activities which are happening in the world
It is also called “what is” or “descriptive”
Normative economics
This is the use of economics to recomment changes. It means advicing on how things “shoud be”
It is also called prescriptive analysis
The market economy
An economy that is entirely run by the market forces demand and supply and there is no government involvement in the economy
A pure market economy may not exist in the real world
Price mechanism
Refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein
It is the buyers and sellers who actually determind the price of a commodity
This is also called the invisible hand (Adam Smith)
Command economy
An economy entirely run by the government
The government decides:
What to produce
How much should be produced
The price at which the goods will be sold at
Mixed market economy
An economic system that has both the free market system and the government involvement in the economy
Assumptions
Assumptions are important in the study of economics because in the real world a lot of things at the same time
Therefore we assume that certain things are constant
Ceteris paribus – all other things are held the same or constant
Production possibility frontier
This is a graph that indicates the various production possibilities of two commodities when resources are fixed
Opportunity cost
The next best alternative foregone
This is because resources are limited
If several things are given up the opportunity cost is the best thing given up
Trade off
This means giving up one thing to obtain something else
The trade off causes the opportunity cost
Opportunity cost vs Trade off
Trade off simply means sacrificing what you have to get something else
Opportunity cost refers to comparing cost and benefits of