Hello, welcome you all to the exiting world
of economics of which microeconomics is a
very important branch .
Before we start with the lectures let me show
you the course text books . First one is by
Pyndyck and Rubinfeld, Indian addition is
available.
This is an excellent text book.
You can definitely read this . There is another
one by Hal Varian, and this is one of the
leading text books in microeconomics as well
. Those who are more mathematically inclined
and wants to learn microeconomics with full
regard of mathematics, I would suggest them
to have a look at this great book by Henderson
and Quandt.
This is also an Indian addition available.
This course aims you to educate with economic
way of thinking, or put in other words this
course would like to teach you with some designing
techniques and tools which are useful to solve
some practical economic, financial and managerial
problems in the ordinary business of life
. As an academic discipline economics is not
really old, but with passage of time the scope
of the subject has grown so wide that it is
very difficult to put forward a simple definition
of economics which can be agreed by all .
Let us focus on one definition provided by
British economist professor Lionel Robbins
which is considered to be the ah most acceptable
definition of the subject as practiced today.
Let us look at the definition provided by
professor Robbins .
He defined economics as a social science subject
. 
Now note in this definition there are 2 important
facts on which we would like to deliver it
further.
So now let us look at what do we mean by scarcity
, and how that is linked with alternative
users which can also be called choices.
So, by scarcity we mean that no human society
has all the required resources to produce
enough amount of goods and services to satisfy
the materialistic demands of it is individuals.
And that definition of scarcity also holds
for individual beams .
So, professor Robbin's definition actually
focuses on this nature of the subject which
is basically can also be called science of
economic choice making . So, the society confirms
with the resource scarcity problem.
At any point of time with given resources
the society has to produce goods and services
so that the societies welfare hits a maximum.
That is basically the problem with which economics
the subject deals .
Later professor Pauls Samuelson an American
economist who is also Nobel laureate tried
to not to put forward a new definition of
economics, he tried to explain what economists
do.
He said that society at any given point if
time confirms 3 basic questions and economics
a subject likes to find the answer for these
3 basic questions.
So now, let us look at what are these 3 basic
questions that society faces.
. So now, we are going to look at professor
Samuelsson work his 3 questions . And note
that these questions immerge because there
is scarcity of resources in the society . 
What commodities this could be goods and services
shall be produced ? And in what quantities
? 
Then the second question is ; how shall this
goods and services be produced given technological
knowhow ?
The third question is how is societies total
output of goods and services be divided , is
divided ? The third question is how is societies
total output divided among it is members?
Putting other words, for whom the goods and
services to be produced?
Later professor Lipsey has added a forth question
to this list.
So now, we are moving to professor Richard
Lipsey's contribution . The forth question
is how efficient is the societies production
and distribution . Now note that here in this
definitions we are talking about society which
is basically collection of individuals.
Now economics has 2 major branches, micro
economics and macroeconomics, the branch microeconomics
talks about the individual's problem.
So, here in the course we are not going to
look at society as a whole how it is facing
different economic problems, and how it is
trying to solve different problems, rather
we would like to see how a particular consumer,
how a particular firm is facing economic problem
and trying to optimize their decisions, their
welfare given the recess constant it faces.
Now we are going to study themes of microeconomics.
First we are going to talk about tradeoffs
, then we are going to talk about opportunity
cost . 
The third item is marginal analysis . 4th
item is price and 
market mechanism . 
The fifth item is equilibrium . The next item
would be theory and models , and the last
item in the list would be positive and normative
analysis .
Let us now start with the ah problem of tradeoffs.
We have already noted that beat a society
or an individual the economic agents face
with the problem of resource constant.
Take the case of a household.
The household has a given income.
So, with this given set of money they can
not buy everything that they want.
The persons you know in a household may wish
to have a luxurious car, but the income or
the wealth that they have that may not be
good enough to buy them a car.
So, when a individual or a household makes
small small choices in ordinary business of
lifes.
Suppose you know a household or a person is
choosing to purchase a then that is also because
of the state of the same problem is faced
by firms also.
Suppose we take the case of a multi-product
firm, a firm which produces a more than one
goods and services.
Now a firm also starts with ah given resource
constant, and the firm has to decide how many
units of good x to be produced and how many
goods of how many units of good y to be produced
the firm cannot make as many as number of
goods x and y as it wishes it is constant
by the resources.
What are these resources?
These resources are like work force natural
capital or natural resources like raw materials
and physical stock of capital.
Now let us move on to the concept of opportunity
cost . Once another Nobel laureate professor
Milton Friedman opined that, there is no such
thing as free lunch . Now what is the reason
behind this popular phrase?
Note that even in this case when you are not
paying for the lunch box, there is still some
trade off and because of this trade off opportunity
cost is arising . Suppose the society decides
not to produce the lunch box for you.
So, the labor capital land etcetera which
had been employed to produce food and the
lunch box for you , could have been employed
elsewhere to produce some other good.
So, the society sacrificing some other good
or services to produce one unit of lunch box
for you.
It is free for you, but it is not free for
society.
Your lunch box comes at a cost for the society.
Think about the friend who has offered you
that free lunch box . Of course, that person
has paid some money, now if he or she had
decided not to buy that free lunch for you,
he or she could have used that money to buy
some other good and services for him or her.
So, of course, that person also sacrificed
to provide you a free lunch.
Now, let us define opportunity cost because
it is a very important concept in economics
. 
Stated otherwise , it is the cost of not choosing
the next based alternative . So, the point
is that as society or any individual economic
agent is always confronted with the problem
of making choices.
And each final choice has opportunity cost
in terms of an alternative not chosen.
Now let us consider the third in the theme
list which is called marginal analysis.
Towards late 19th century, there is some of
search of ah research in microeconomics and
economics, and it is known as marginalist
revolution.
So, what is marginalism?
It is a new term marginalism became very popular
with this book published by professor Alfred
Marshall a British economist , and the name
of the book is principles of 
economics which got published 
in the year of 1890 .
This concept of marginalism is now an integral
part of economic analysis, it is very important.
So now, let us look at what do we mean by
marginalism.
So, we will first define it and then we will
discuss.
So, marginal analysis 
investigates 
the effects of infinitesimal which means very
small change and this change could be , this
change could be addition or subtraction from
a current situation.
. So, as per the marginal analysis a national
economic agent considers taking a move or
taking an action by comparing the additional
benefits of an activity to the additional
cost of that activity if taken.
And if he or she finds that the additional
benefit from this marginal change is higher
than that additional cost of this particular
action taken, then he or she will take it
otherwise not.
Now having studied marginalism trade off and
opportunity cost, we should also comment that
this 3 items or themes are linked with each
other.
Because there is resource scarcity the individual
economic agent or society faces the choice
problem.
And as the person faces choice problems or
society faces a choice problem there is opportunity
cost.
Now, before we move on to the other items
in the themes list, let us study a concept
which is ah linked with these 3 themes.
And the concept is known as a production possibility
curve or production possibility frontier .
First we are going to define the concept and
then we are going to provide a graphical illustration
of the concept . PPF or PPC shows the maximum
contribution , combinations of 2 goods 
that can produced with full employment of
given resources , 
and given knowledge of technology . 2 things
are very important to note down, that we are
talking about full employment of given resources,
and we are also talking about a given state
of technology .
In the next lecture, we are going to study
this concept of production possibility frontier
in greater details .
