welcome to nptel course on microeconomics
i am dr vimal kumar assistant professor at
iit kanpur i am going to teach you microeconomics
so before we start talking about microeconomics
let us learn about what is economics 
economics has several definitions the basic
definition that you would find in most of
the textbook is that economics is the study
of allocation of scarce resources to satisfy
individual wants or desire so lets look at
the keyword let me repeat the definition again
the economics is study of allocation of scarce
resources to satisfy individual needs individual
wants not needs
so lets look at the key words in this definition
the first key word that we will pay attention
to is resources the second key word we will
look at is wants or desire the third key word
we are going to look at is scarce what do
we mean by scarcity or scarce resources the
fourth key word we will look at is allocation
and fifth we are going to spend some time
on individuals also what do i mean by individuals
so 
see when we are going to learn what is economics
we have to familiarize ourselves with the
language that economists use the german that
is prevalent in economics language so to talk
about resources i am going to first describe
what we call goods and bads
so a good is something that gives us pleasure
that gives us satisfaction something 
that gives us happiness or satisfaction so
think about what are the things that gives
you satisfaction or happiness it can be anything
it can be a pen that i am using to write here
it can be lcd screen it can be sweets it can
be a television program or it can be the time
that you spend with your family it can be
anything ok as long as that thing gives you
some sort of satisfaction or happiness we
will call that thing in economics a good ok
and of course the opposite of good is bad
bad is something that gives you dissatisfaction
that makes you unhappy so like what would
be the bad in think about it you can think
one example that readily comes into my mind
is these days pollution it makes you unhappy
ok so clean air is a good while polluted air
is a bad clean air gives you happiness it
gives you satisfaction while pollution gives
you unhappiness it it leads to some sort of
dissatisfaction in you so pollution is of
course a bad
now if you have paid attention what that the
term that different things that i described
as good you will find there very tangible
kind of goods like tv refrigerator or sweets
but i also said that the time that you spend
with your family member that is also a good
its or the happiness that you get derive by
spending time with your family member that
is also a good so its so when we are talking
about good we are talking about two different
sort of things tangible goods or and intangible
goods 
so a different definitions sometime use tangible
goods in some time they are represented by
goods and intangible goods we use a specific
term for intangible goods and that is services
so services is intangible product that is
used to satisfy your need or that is services
is intangible product that gives you happiness
so that distinction sometimes we make but
we are very sloppy about it sometime we use
goods for tangible as well as intangible things
but sometimes we say goods only for tangible
goods and services for intangible goods
so keep it in your mind context will make
it clear that what is the meaning of goods
in that particular context now you may say
how can we quantify these intangible goods
so lets do a thought experiment to learn about
quantification of intangible good because
remember in economics we try to quantify not
try to we have to quantify almost everything
so lets look at it how we have tried to quantify
even intangible things in economics lets say
that you are travelling in a train you bought
your ticket
but unfortunately when tt that is ticket examiner
comes and asks you to produce your ticket
you see that the ticket is not on you you
do not have that ticket now tt is says that
he is going to fine you because you dont have
ticket you are travelling in that train without
having proper document or proper ticket he
is going to fine you and the amount of fine
lets say just for discussions sake is somewhere
its five hundred rupees ok
now if you say that sorry i dont have this
sort of money and he says then in that case
you will have to go to jail for seven days
so these are the two options available to
you either you pay five hundred rupees or
you go to a jail for seven days what would
you do probably probably you would say ok
i would pay five hundred rupees and you would
avoid going to jail but lets continue this
thing as a thought experiment
lets say suppose he says tt instead of fine
finding you for five hundred rupees he says
its five hundred one rupees and the second
option is that you go to jail for the seven
days you may still opt for paying that fine
so keep on increasing keep on increasing this
fine in small increments by one rupee keep
on increasing probably there will be a some
level where you would say that you would rather
go to the jail then paying this exorbitant
amount of fine so it means there will be a
particular level where you would be indifferent
between going to jail or paying this particular
fine
so that i would say as an economist that that
is the value that you attached to go into
the jail for seven days lets say for example
that you stopped that at fifty thousand rupees
you figured out that you would rather go to
the jail than paying this fifty thousand rupees
then i would say that the value of going to
jail for seven days is fifty thousand rupees
for you but remember this fifty thousand is
not a hard and fast rule
its not like everyone would say that fifty
thousand is that level where you would shift
from you would change your decision from paying
the fine to going to jail different people
will have different level it depends how much
money you have how much you value your how
much you value how much you disvalue go in
to jail for example ah a person who is very
who is a frequent visitor of jail would probably
say ok i would rather go to the jail than
paying this fine
so thats how we try to quantify we we try
to quantify everything in economics and that
we will see ok so now let me say that let
me define a term reservation price of activity
x what is reservation price of activity x
the price at which you would be indifferent
between opting for x or not opting for x so
lets say we are talking about x and here x
is going to jail so then fifty thousand rupees
is the reservation price at this level you
are indifferent between these two things
