A study that deals with choices of individuals and firms to change in relative prices., Study notes of Principles of Marketing

Download A study that deals with choices of individuals and firms to change in relative prices. and more Study notes Principles of Marketing in PDF only on Docsity! 1 INTERMEDIATE MICROECONOMICS Introduction What is economics? Economics is traditionally defined as the allocation of scarce productive resources among competing end uses. This definition brings out important economic concepts:- (1) Scarcity (2) Choice (3) Opportunity cost By examining the activities of consumers, producers, suppliers of resources, government, economists seek to understand how resources are allocated. Economics is divided into two branches: microeconomics and macroeconomics Microeconomics 1. Deals with the choices of individuals Individuals households or individual firms 2. Relative prices play an important role i.e. we study the response of consumers and producers to changes in relative prices of domestic versus foreign cars, apples versus oranges e.t.c. N.B The major emphasis in microeconomics is on the decision making of individual consumers and producers (or firms) and on a discussion of relatively homogenous products. Macroeconomics (1) Macroeconomics deals with economic aggregates – total consumption, total production e.t.c We talk of GNP which is an aggregate over many different products. (2) In macroeconomics we pay attention only to changes in the price level, interest rates e.t.c In summary, the major emphasis in microeconomics is on the decision making of individual consumers and producers, whilst in macroeconomics we study total employment, general price level, total gross national product and other problems. Productive Resources Productive resources are usually classified under the following categories:- (1) Natural Resources:- Land, water, air, minerals, forests (2) Human Resources Skilled and unskilled labor (3) Capital Resources Machines, equipment, buildings (4) Entrepreneurial Resources A special category of human resources that consists of people who combine natural, human and capi tal resources to produce output, take risks e.t.c Entrepreneurs are the ones who make the decisions about organization of production. 2 In economics, these resources are discussed as factors of production. ` Types of microeconomics analysis The answers to many problems in microeconomics will depend on the type of analysis we conduct. We hav e four categories:- 1) Positive and normative analysis 2) Statics, comparative statics, and dynamics. 3) Short-run and long-run analysis. 4) Partial and general equilibrium analysis. 1. Positive versus Normative analysis Positive _ deals with the question of what is Normative_ deals with the question of what ought to be 2. Statics, comparative statics and dynamics Equilibrium is defined in economics as a position from which there is no reason to move. Posit ions of equilibrium are very rarely attained but they are considered important because they indicate the direction in which economic variables will tend to move if they are not in equilibrium. (i) Statics Is the branch of economics which studies the properties of positions of equilibrium in the economic system. (ii) Comparative statics Is the branch of economics which compares equilibrium positions when external circ umstances change. In both statics and comparative statics we concentrate only on equilibri um positions. We are not concerned with how long it takes to achieve the equilibrium position or by what path the equilibrium is attained. (iii) Dynamics Is the branch of economics concerned with whether an economic system is dise quilibrium reaches an equilibrium position, how long it takes and the path it follows to do th is. 3. Short-run and long-run analysis Short-run is a time period during which consumers and producers have not had enough time to mak e all the adjustments to the new situation. Long-run is a time period during which consumers and producers have had enough time to make all the adjustments to the new situation. 4. Partial and general equilibrium analysis Partial equilibrium analysis uses the ceteris paribus assumption. Partial equilibrium analysis is used in two cases:- 1) When we are concerned with an event or occurrence that affects only a given industry. 2) When we are concerned with the first-order effects. General equilibrium analysis is concerned with the study of the effects of certain changes and polic ies after all the interactions in the economy have taken place.