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Basic Economics
Economics is defined as the study of how we manage our scarce resources.
Microeconomics is the study of the decisions of individuals, households, and
businesses in specific markets, whereas macroeconomics is the study of the overall
functioning of an economy such as basic economic growth, unemployment, or
inflation. Scarcity in microeconomics is not the same as poverty. It arises from the
assumption of very large (or infinite) wants or desires, and the fact that resources to
obtain goods and services are limited.
wants exceed resources necessary to obtain them
therefore we must make choices
every choice leads to a cost
Scarcity of Resources
Scarcity of resources refers to the limitations in fulfilling each and every want of a
person because of deficiency of resources needed to fulfill a want.
The basic economic problem which arises from people having unlimited
wants while there are and always will be limited resources. Because of
scarcity, various economic decisions must be made to allocate resources
efficiently.
If there were no limitation or scarcity of resources then no economic problem would
have arisen.
Nature of economics
It is a science and yet it cannot predict future facts like physics and chemistry can. We
cannot fully understand people's present actions nor can predict future intentions.
In Economics everything depends on everything else. Change in fashion can utterly
change in demands and upsets economists' calculations.
Role of an economist is of an expert who can say what consequences are likely to
follow certain actions. It is said that function of an economist is merely to explore and
explain not to advocate and condemn. An economist can give the light not the fruit,
and it is for fruit that people turn to economics.
Economics has no voice. It is up to Government or individuals to determine what they
want to have. When that is settled economist will come in and suggest how best to
achieve those end with minimum expenditure of recourses.
Economics is primarily study of man, not of wealth. But it studies welfare of man in
terms of his economic prosperity.
Marginal Utility
Marginal utility is the satisfaction gained from consuming one unit of a good or the
satisfaction forgone by consuming one less. If someone eat six apples and then eats a
seventh, total utility will refer to satisfaction he received from eating seven apples
while marginal utility will refer to utility received from eating seventh apple after
already eating six.
This is because;
Even though human wants in aggregate are unlimited, yet a particular want
can be almost satisfied.
Goods are imperfect substitutes for one another. Different commodities satisfy
different wants.
Cons.
Suitable units One spoon of water cannot satisfy thirst
Suitable Time Utility of second meal in an hour would obviously be less
Unchanged tastes
Normal Persons Considering Introspection, person should be a normal one
with tastes like other, should no be abnormal
Rare Collections The more you have antiques, the more you have satisfaction,
utility will not diminish
Change in other people's stocks Your rival losses his coin collection, your
satisfaction for your coins will increase.
Complementary Possessions Carriage without horse has low utility, with
horse it gives more satisfaction.
Not applicable to money Utility of money does not diminish.