E-LESSON-3 MICRO ECONOMICS-1 ENG

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B.A.English 2 All right are reserved with CU-IDOL Microeconomics-I Course Code: BAQ108 Semester: First e-Lesson: 3 SLM Unit: 3 www.cuidol.in Unit-3(BAQ108)

MICRO ECONOMICS 33 OBJECTIVES INTRODUCTION In this unit we are going to learn Student will be able to understand concept of what about the concept of Resource to produce, how much to produce, how and where Allocation. to produce. Under this you will be able to Students will be able to apply the contents of describe how business problem is business output decisions. essential an economic problem. Students will be able to discuss the different economic systems working towards resource allocation. www.cuidol.in Unit-3(BAQ108) INSTITUTE OF DISTANACEll ArNigDhtOaNrLeINreEsLeErAvRedNIwNiGth CU-IDOL

TOPICS TO BE COVERED 4  Basic Economic Problem Causes of Economic problem Fundamental Economic Questions  Concept of Opportunity Cost www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Basic Economic Problem 5 The fundamental economic problem is the issue of scarcity and how best to produce and distribute these scare resources. Scarcity means there is a finite supply of goods and raw materials. Finite resources mean they are limited and can run out. Unlimited wants mean that there is no end to the quantity of goods and services people would like to consume. Because of unlimited wants – People would like to consume more than it is possible to produce (scarcity) www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Causes of Economic Problem 6  Scarcity of Resources- Resources like labor, land, and capital, etc. are insufficient as compared to the demand. Therefore, the economy cannot provide everything that people want.  Unlimited Human Wants- Human beings demands and wants are unlimited and never ends, which means they will never be satisfied. If a person one wants is satisfied, they will start tempting some new desires. People wants are unlimited and keep multiplying, therefore, cannot be satisfied because of limited resources.  Alternative Uses- Resources being scared they are put into different uses. So, to make a choice among resources are essential. For instance, petrol is not only used in a vehicle but it is also used for generator, running machine, etc. So, now the economy should make a choice within the alternative uses. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Fundamental economic question 7 www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

What to produce? 8  A country cannot produce all goods because it has limited resources.  It has to make a choice between different goods and services.  Every economy has to decide what goods and services should be produced.  g. If farmer has a single piece of agriculture land. Farmer has to make choice between two goods whether to grow rice or wheat.  Similarly, our Government has to decide where to allocate fundse. for the production of defense goods or consumer goods and if both then in what proportion. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

How to produce? 9  This problem refers to the choice of technique of production. This problem arises when there is the availability of more than one way to produce goods and services.  There are mainly two techniques of production. These are:  Labour intensive technique(greater use of labour)  Capital intensive technique(greater use of machines)  Labour intensive technique promotes employment whereas capital intensive technique promotes efficiency and growth. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

For whom to produce? 10  The society cannot satisfy all the wants of all the people. Therefore, it has to decide who should get how much of the total output of goods and services.  Society has to make choice of whether luxury goods or normal goods have to be produced. This distribution or proportion directly relates to the purchasing power of the economy. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

The economic problem 11 All societies face the economic problem, which is the problem of how to make the best use of limited, or scarce, resources. The economic problem exists because, although the needs and wants of people are endless, the resources available to satisfy needs and wants are limited. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Limited resources 12 Resources are limited in two essential ways:  Limited in physical quantity, as in the case of land, which has a finite quantity.  Limited in use, as in the case of labour and machinery, which can only be used for one purpose at any one time. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

CENTRAL ECONOMIC 13 PROBLEMS i) Allocation of resources a)What to produce and of what quality :-consumer goods or capital goods, war time goods or peace time goods b)How to produce:- technology –capital intensive or labour intensive c)For whom to produce:- functional distribution or personal distribution ii) Efficient Utilization of resources-no wastage- no over utilization nor underutilization. Economic efficiency refers to efficiency in production and efficiency in distribution. iii) Growth of resources:-It refers to increase in productivity of resources through improvement in technology. (Allocation = the act of sharing something/ an amount of resources allowed or assigned for something) www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Opportunity Cost 14 The compromises or the trade-offs that the individuals and enterprises make to accomplish restrained resources such as money, time, land and capital. For instance, an individual who can decide to go to an academy or begin a company who doesn’t have enough time or money to do both. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Summary 15  Economic problem is the problem of choice arising from use of limited means which have the alternative use for the satisfaction of various wants.  Cause of economic problems are :(a) Unlimited Human Wants(b) Limited Economic Resources(c) Alternative uses of Resources.  Opportunity cost :The compromises or the trade-offs that the individuals and enterprises make to accomplish restrained resources such as money, time, land and capital. For instance, an individual who can decide to go to an academy or begin a company who doesn’t have enough time or money to do both. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Frequently Asked Questions 16 Q1. What are the three central problems of Economy? Answer: The three central problems of Economy are. • What to Produce • How to Produce • For whom to Produce. Q2. What does the problem for whom to produce refer to? Answer: The problem for whom to produce refers to a particular section of people who will consume the end product. Here, the problem of choices arises because the manufacturers are unable to produce each product in huge quantity to satisfy everybody’s need. So, the consumers’ have to make choices between which product is more important to them, so the limited resources can be distributed rationally. Q3. Explain the concept of an opportunity cost Answer: When a producer uses a certain factor in the production of a specific commodity, then he forgoes the production of other commodities for which he could use the same factor. The amount of the commodity that he forgoes is the OC of the amount of extra production of the specified commodity. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

Multiple Choice Questions 17 1. The central problem of an economy is (A) Assigning limited resources in a way that unlimited desires and needs of the society are satisfied (B) Ensuring a minimum income for each citizen. (C) Assuring that production happens in the most effective way. (D) Analyzing the demand with market economies. 2. The creation of choice is done by (A) Scarcity of resources (B) Less choice option (C) The urgency of needs (D) Abundance of resources 3. Allocate decision implies: (B)For Whom to produce (A)Why to produce (D)When to produce (C)How much to produce Answers: 1.(A) 2.(A) 3.(B) www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

REFERENCES 18 1. Ahuja, H.L.(1999). Advanced Economic Theory. New Delhi: S.Chand&Co. 2. Chopra,P.N.(1998). Micro Economic Theory and Welfare Economics. New Delhi: Kalyani Publishers. 3. Chopra,P.N.(2006). Advanced Economic Theory. New Delhi: Kalyani Publishers. 4. Lekhi, R.K., Walia, H.S. & Talwar,S.J.(2003).Micro Economics. New Delhi: Kalyani Publishers. 5. Lipsey,R.G. & Chrystal, K.A.(2004). Economics. New Delhi: Oxford University Press. 6. Mandal,R.K.(2007). Micro Economics Theory. New Delhi: Atlantic Publishers. 7. Ray, N.C.(1980). An introduction to Micro Economics. New Delhi: The Macmillan Company of India. 8. Salvatore,D. (2003). Micro Economics: Theory & Applications. New York: Oxford University Press. 9. Singh,M. (1971). MangSidhant Ate Mishrat Arth-VivsthaVich Arthik Ganana. Patiala: Punjabi University. 10. Vohra, P.& Mehta,R. (2007). Micro Economics. New Delhi: Commonwealth Publishers. www.cuidol.in Unit-3(BAQ108) All right are reserved with CU-IDOL

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