Looking to strengthen your understanding of microeconomics in a simple, exam-ready format? Unit 1 of Microeconomics lays the groundwork for all future economic studies by explaining fundamental concepts such as demand, supply, price mechanism, and economic decision-making.
This unit is perfect for BBA 1st Semester students who want to grasp the basics clearly and quickly. Let’s explore the full scope below 👇
Download Unit 1 – Introduction to Microeconomics Notes
Want to revise anytime, anywhere?
⬇️
Download Unit 1 Notes PDF
(a) Introduction to Microeconomics
What is Microeconomics?
Microeconomics is the study of individual economic units like consumers, producers, and markets. It focuses on how limited resources are allocated and how prices are determined through demand and supply.
Nature and Scope of Microeconomics
Microeconomics is analytical in nature and helps in understanding specific market mechanisms. Its scope includes price determination, consumer behavior, production, cost, and market structures.
Difference Between Micro and Macroeconomics
Microeconomics deals with individual units and specific markets, while macroeconomics focuses on the economy as a whole like national income, inflation, and unemployment.
| Basis | Microeconomics | Macroeconomics |
|---|---|---|
| Focus | Individual units (consumer, firm) | Economy as a whole |
| Key Concepts | Price, demand, cost, revenue | GDP, inflation, unemployment |
| Decision-making | Individual level | Policy level (fiscal/monetary) |
Importance of Microeconomics
Microeconomics helps in determining the price of goods and services, planning production efficiently, allocating resources wisely, and forming business and economic policies.
Limitations of Microeconomics
It is based on unrealistic assumptions like perfect competition and rational behavior. It also ignores aggregate issues like inflation and economic growth.
What are Basic Economic Problems?
Every economy faces the problem of scarcity, which leads to three fundamental questions: What to produce? How to produce? For whom to produce? The price mechanism helps in resolving these problems.
Positive vs Normative Economics
Positive economics explains economic issues based on facts and logic, while normative economics involves opinions and value judgments about what ought to be done.
- Positive: “An increase in demand raises prices.”
- Normative: “Government should control fuel prices.”
(b) Demand and Supply Analysis
What is Law of Demand?
The law of demand states that, other things being equal, the quantity demanded of a good decreases when its price increases and vice versa.
Determinants of Demand
The main factors influencing demand are the price of the good, consumer income, prices of substitutes and complements, consumer tastes, and expectations of future prices.
What is Elasticity of Demand?
Elasticity of demand measures how much the quantity demanded changes with a change in price, income, or the price of related goods.
- Price Elasticity: Change in demand due to price change
- Income Elasticity: Change due to change in income
- Cross Elasticity: Change due to related goods’ price
What is Law of Supply?
The law of supply states that, all else being equal, the quantity supplied of a good rises when the price of the good rises.
Determinants of Supply
Key supply factors include the product’s price, production technology, cost of inputs, and government rules or taxes.
Elasticity of Supply
It refers to how responsive the quantity supplied is to a change in price. Higher elasticity means producers can adjust supply quickly.
What is Market Equilibrium?
Market equilibrium occurs where the quantity demanded equals the quantity supplied. Changes in demand or supply shift the equilibrium price and quantity.
- Rise in demand → Higher price and quantity
- Fall in supply → Higher price, lower quantity
Why Study Microeconomics?
Microeconomics helps you understand how markets work, how prices are determined, and how consumers and producers interact. It is the foundation of all business decisions, making it a vital part of the BBA curriculum