Micro-Economics

By Shakeeb Ahamed Riyas

WHATS IN THIS?
Within this document you will find simple explanations which I wrote in a way that

I could understand the subject of micro – economics

SOME THINGS YOU HAVE TO KEEP IN MIND

Listen I didn’t attempt this in a old fashioned way where you copy each and everything

from madams slides, rather I re-wrote the things that madam explains in class in a way I

would be able to understand.

Also, I too may have made some small mistakes here and there, because keep in mind that these

are all the notes I write down in class and are not the notes I copy from madams slide after

coming home. I shared this with you’ll so that when you’ll study for a quiz or an exam if you

don’t understand a concept or theory, you’ll can check this out so that you can understand

the concepts or theories more clearly.

The ones marked in RED ARE THE IMPORTANT POINTS AND IS BETTER IF YOU

REMEMBER THEM.

I will try to update the notes after every class we do.

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ECONOMICS – WHAT’S THE BIG
IDEA?

Definition:

Economics is the study of how people behave when producing, distributing,

and consuming goods and services to satisfy their unlimited needs using
limited resources.

Or simply:

How people make smart choices when there isn’t enough to go around.

Fun Fact:

Economics is called a social science because it studies real human

behavior. It’s not about numbers alone – it’s about people, choices, and
consequences!

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Economics is always on the move.
Why? Because it deals with dynamic variables – things that change
constantly:

1. People's needs and wants

2. Prices of goods and services
3. Availability of resources
4. Government policies and global events

So, if you thought economics was boring or static… think again! It changes
as fast as the latest TikTok trend.

Needs vs. Wants – Know the Difference!

Let’s break it down nice and easy:

Needs =
Scientific Explanation Definition:

Needs are the basic biological and psychological requirements that are
essential for human survival and proper functioning.

These are the must-haves – essentials for survival:

1. Food – Without it? Game over.

2. Water – No water, no life.
3. Shelter – A place to stay safe and warm.

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Wants
Scientific Explanation Definition:

Wants are desires for specific ways to fulfill needs or for items that
provide comfort, pleasure, or social status, but are not essential for
survival.

These are the nice-to-haves – things that make life fun and comfortable.
They're not necessary, but they sure make us smile!

Example:

• Need: Food
• Wants: Pizza, sushi, biryani, chocolate cake, or maybe a five-layer
ice cream sundae!

In short:

Needs keep you alive.

Wants keep you happy.

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The Heart of Economics: CHOICES
Here’s where it gets real:

You can't have everything – and that’s the entire point of economics.

You have to make choices.

And every choice comes with a cost.

Scientific Definition of Choices:

Choice is the cognitive process of selecting one option from a set of

available alternatives, often based on preferences, perceived benefits,
and constraints such as limited resources.

Opportunity Cost – What You Give Up

When you choose one thing, you miss out on something else. That’s called
opportunity cost.

Scientific Definition of Opportunity Cost:

Opportunity cost is the value of the next best alternative that is

foregone when a decision is made to pursue a certain action, under
conditions of scarcity.

Example:

You have Rs. 100.

Spend it on ice cream?

Or a notebook for school?

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 If you buy the ice cream, the cost isn’t just money – it’s the lost chance to
get the notebook.

That lost chance is your opportunity cost.

Scarcity – The Core of Economics!

Definition:

Scarcity means there aren’t enough resources to satisfy everyone’s unlimited

wants.

➡ Resources are limited

➡ Human wants are unlimited

And that’s where the drama begins!

Economics = Dealing with this never-ending tug-of-war!

Scientific Definition of Scarcity

Scarcity is the fundamental economic condition where available resources

limited and insufficient to satisfy all human wants and needs.

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Types of Resources – The Economy’s Ingredients!
Scientific Definition of Resources (in Economics):

Resources in economics are the inputs or factors of production used to

produce goods and services that satisfy human wants and needs. They are
limited in supply and include land, labor, capital, and entrepreneurship.

Think of resources as the magical tools that keep the economic world spinning:

💰 Money – We all want more, right?

🌍 Land – Space for homes, farms, factories… even football fields!

👷 Labour – The people who get the job done.

🏭 Capital – Machines, tools, and tech that boost production.

💡 Entrepreneurship – The brilliant minds behind businesses!

But here’s the twist: These are ALL limited — and yet, everyone wants more!

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Key Truths About Scarcity

1. Scarcity is a relative concept

It’s everywhere, but it doesn’t look the same in every place.

Example: Water might be scarce in a desert, but not in a rainforest! ☀🌧

2. Scarcity always competes with unlimited wants

You want more clothes, more food, more gadgets... The list never ends!

Scarcity only matters because our wants never stop! (More! More! More!)
📱🍔👟

3. Scarcity affects every society

From New York to New Delhi, no country escapes this.

Even the richest nations can’t give everyone everything. 🌎

4. Everyone has unlimited wants

Doesn’t matter if you’re rich or poor — we all want something more.

(Yes, even billionaires wish they had something they don’t!) 💸

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5. Scarcity ≠ Poverty

Let’s get this straight:

• Scarcity = A universal, permanent issue

• Poverty = A temporary, fixable condition

Even the richest person can’t escape scarcity — because they still have to
choose.

(Sorry, money doesn’t make this one go away!) ⚖

Scarcity vs. Excess Demand – Not the Same

Thing!
Let’s clear up a common mix-up:

Scientific Definition of Excess Demand:

Excess demand occurs when the quantity of a good or service demanded

exceeds the quantity supplied at a given price, resulting in a market shortage.

Scarcity vs. Excess Demand Scientific explanation

Scarcity is a permanent and universal problem in economics where limited

resources cannot satisfy unlimited human wants. In contrast, excess demand is
a temporary situation where the demand for a specific good or service exceeds
its supply at a certain price. While scarcity affects all resources and requires
careful choice-making, excess demand can usually be fixed by adjusting prices
or increasing supply.

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📉 Excess Demand:

• A short-term problem
• Example: Not enough PS5s in stock during holiday season!
• Fix? Increase production or supply!

⚠ Scarcity:

• A long-term challenge
• It’s always there because wants never stop growing
• No matter how much we make, people will still want more!

Conclusion – Why Scarcity Matters

Scarcity is the reason economics exists!

As long as people want more than what’s available, economists will always have
problems to solve.

It’s the never-ending puzzle of life! 🧩

Fun Example – Pizza Edition! 🍕

You’ve got 3 slices of pizza...

But 5 hungry friends.

Who gets what? Who gets nothing?

Do you cut slices smaller or share a bite each?

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Opportunity Cost – The Cost of Your Choice!

Scientific Definition of Opportunity Cost:

Opportunity cost is the value of the next best alternative that is foregone
when a decision is made to pursue a certain action, under conditions of
scarcity.

Simple Definition:

Opportunity Cost is the value of the next best alternative you give up when
making a decision.

➡ In simple terms: What you miss out on to get something else!

Every choice has a cost... even the good ones! ⚖

Example Time! 💭

Scenario:

You have Rs. 10,000 and two heartwarming choices:

1. Buy a birthday gift for your mom 🎁

2. Donate it to a poor family 🤝

You choose:

Buy the gift for your amazing mom!

Your Opportunity Cost:

The joy and impact you would have felt from helping a family in need.

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> So even though your choice was meaningful, you gave up another meaningful
experience.

That "what you gave up" = Opportunity Cost!

Utility – Your Happiness Meter! 😊

Scientific Definition of Utility (in Economics):

Utility is the measure of satisfaction, usefulness, or benefit that a consumer

derives from consuming a good or service. It reflects the subjective value a
person places on a product based on their preferences and needs.

Simple Definition:

Utility is the satisfaction or happiness you get from consuming a good or

service.

Example:

Eating your favorite ice cream?

Utility level = THROUGH THE ROOF! 🍦

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Law of Diminishing Marginal Utility – Fancy Name,
Simple Idea! ⬇
Scientific Definition of the Law of Diminishing Marginal Utility:

The Law of Diminishing Marginal Utility states that as a consumer consumes

additional units of a given good or service, the marginal utility (additional
satisfaction) derived from each successive unit declines, holding all other
factors constant.

In simpler terms:

The more you consume of something, the less satisfaction you get from each
new unit.

➡ The more you consume something, the less extra happiness you get from
each new unit.

Let’s say you’re crushing slices of pizza:

1st slice: OMG YESSS! 🍕

2nd slice: Still awesome.

3rd slice: Uhh… okay.

4th slice: I can’t. I’m stuffed. (Regret begins...)

That’s diminishing marginal utility – satisfaction keeps dropping with each

extra bite!

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Key Terms to Know: 📚

⭐ Total Utility:

The total happiness from everything you consumed.

Scientific = Total utility is the aggregate amount of satisfaction or benefit a

consumer derives from consuming a certain quantity of a good or service. It is
the sum of the marginal utilities obtained from each unit consumed.

⭐ Marginal Utility:

The extra happiness from just one more unit.

Scientific = Marginal utility is the additional satisfaction or benefit a

consumer gain from consuming one more unit of a good or service, while keeping
all other factors constant. It helps explain how consumer preferences change
with increased consumption.

Example:

You eat 3 scoops of ice cream:

Total Utility = Your overall joy

Marginal Utility = Joy from that 3rd scoop specifically

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Star Tip! ✨

When you keep enjoying more of something...

➡ The extra satisfaction (Marginal Utility) starts to drop.

That’s why... the first bite is always the BEST! (And the last one? Maybe not
so much...)

When Marginal Utility becomes ZERO, it means you're fully satisfied.

No more extra happiness from one more unit.

You’ve hit your limit – it’s chill time! 😌

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The Three Faces of Marginal Utility 🎭

Let’s break it down with our fav food: Pizza! 🍕

1. Positive Marginal Utility – YES PLEASE! ⬆

Scientific = Positive marginal utility occurs when the consumption of an

additional unit of a good or service results in an increase in total utility. This
means the consumer derives additional satisfaction from each extra unit
consumed.

You’re enjoying the experience, and each new unit of the good makes you even
happier.

You’re not full, bored, or tired of it yet — so your satisfaction is still

increasing.

What it means:

• You're still excited to consume more.

• Each extra unit gives you added value or joy.
• This is the early stage of consumption, where the experience is fun and
rewarding.

Example (Pizza Edition):

• 1st slice: “Heaven on a plate!”

• 2nd slice: “Still delicious!”
• You’re getting more utility with every bite = Positive MU!

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 2. Zero Marginal Utility – I'm Good, Thanks ⛔

Scientific definition

Zero marginal utility occurs when consuming one more unit of a good provides
no additional satisfaction. It means the consumer is fully satisfied with the
current quantity. At this point, marginal utility (MU) equals zero.

You’ve reached your satisfaction limit. Eating more doesn’t make you happier —
but it doesn’t upset you either.

What it means:

• You’ve had enough to feel full and satisfied.

• Adding more doesn’t make you happier — it just doesn’t do anything.
• Your Total Utility is at its peak, but no extra gain comes from more
consumption.

Example (Pizza Edition):

After 4 slices, you're like: “That was great, but I really don’t need more.”

If someone offers you another slice, you might shrug and say:

“Eh… I’m okay.”

That moment? Zero MU — you're not getting happier, but you're not upset
either.

not excited anymore. 😐

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3. Negative Marginal Utility – Too Much of a Good Thing! 🔻

Scientific definition

Negative marginal utility occurs when the consumption of an additional unit of

a good decrease’s total utility. It implies that the extra unit causes
dissatisfaction, and the marginal utility (MU) becomes less than zero (MU< 0).
This often reflects overconsumption beyond the point of satiation.

Definition:

Negative Marginal Utility happens when consuming more of something actually

starts making you feel worse.

➡ More is NOT always better!

What It Means:

• Instead of happiness, you feel discomfort or even regret

• Your total utility might still be high, but each new unit is reducing your
joy
• This is the “I shouldn’t have had that extra slice” zone!

Example – Pizza Overload Edition: 🍕

5th slice: You’re full, but it still tastes kinda okay

6th slice: “Ugh, I think I overdid it.”

➡ Now you’re bloated, sleepy, maybe nauseous.

Congratulations — you’ve entered Negative MU!

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Tied to the Law of Diminishing Marginal Utility

The more you consume, the less additional happiness you get — until it starts
to go downhill.

Assumptions of the Law 📌

To understand the Law of Diminishing Marginal Utility, economists assume a

few things:

1. Rational Behavior: Consumers make smart, logical decisions 🧠

2. Measurable Utility: Satisfaction can be measured in units (even if just for

theory!)

3. Continuous Consumption: Goods can be consumed one after another 🔁

4. Constant Preferences: Your likes and dislikes don’t change during the
process ❤

5. Identical Units: Each unit of the good is exactly the same (like identical
slices of pizza!) 🍕=🍕=🍕

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BASIC PRINCIPLES OF
ECONOMICS 📖
Let’s shift gears and explore how things are made in economics!

Goods & Services

Scientific definition

In economics, goods and services are the fundamental outputs of production

that satisfy human wants and needs. Goods are tangible, physical items (e.g.,
food, clothing), while services are intangible activities or benefits (e.g.,
healthcare, education). Together, they form the basis of economic exchange
and consumption.

To provide goods (things you can touch) and services (things people do for
you), we need a production process:

Production Flow:

Input ➡ (Processed) ➡ Output

Output Types:

• Goods = Physical items (books, cars, phones) 📚🚗📱

• Services = Activities provided (teaching, haircuts, repairs) 👩🏫✂🔧

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Production – The Economic Engine! ⚙
Scientific definition

In economics, production is the process of combining inputs such as land, labor,

capital, and entrepreneurship to create goods and services that have utility
and can satisfy human wants. It involves transforming resources into outputs
through various methods and technologies to contribute to economic activity.

Simple Definition:

Production is the transformation of inputs into outputs.

It’s where resources meet human effort to create value!

Factors of Production – The Fantastic Four of Economics! 🌍👷🏽🏦💡

To produce anything, you need:

1. Land – Natural resources like water, soil, and minerals 🌾🌊

2. Labor – Human effort (physical or mental work) 👨🔧👩⚕

3. Capital – Tools, machines, buildings used in production 🏭🛠

4. Entrepreneurship – The brains and bravery to organize and take risks! 💼💥

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Factors of Production: Land & Labour 🌍⚒

1. Land – Nature’s Gift! 🏞

Scientific definition

land refers to all natural resources used in the production of goods and
services. This includes not only the physical ground but also resources like
minerals, water, forests, and air. Land is considered a primary factor of
production and is typically fixed in supply.

Simple Definition:

Every natural resource found on Earth — provided freely by nature.

➡ From forests to rivers, sunlight to minerals — it’s all classified under Land.

Types of Resources Under Land

1. Renewable Resources ♻

Scientific definition

renewable resources are natural resources that can replenish themselves over
time through natural processes, making them sustainable for continuous use.
Examples include solar energy, wind, forests, and fisheries. Their effective
management ensures long-term availability for economic production and
consumption.

• Replenish naturally
• Can regenerate quickly (as fast as we use them!)

Examples:

Sunlight ☀, wind 💨, water 🌊, forests 🌳

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 2. Non-Renewable Resources 🪨

Scientific definition

non-renewable resources are natural resources that exist in finite quantities

and cannot be replenished within a human timescale once depleted. Examples
include fossil fuels (coal, oil, natural gas) and minerals. Their scarcity and
eventual exhaustion make efficient use and conservation critical for
sustainable development.

• Found in limited quantities

• Take millions of years to form again (if ever!)

Examples:

Oil 🛢, coal ⚫, natural gas 🔥, minerals ⛏

In a Nutshell:

Renewable ♻ Non-Renewable 🪨

Availability= Infinite Availability= Limited

Regeneration=Fast Regeneration=Very Slow

Eco Impact=Friendly Eco Impact = Harmful

Sustainability = High Sustainability = Low

Sources = Many Sources = Depleting

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2. Labor – Human Effort in Action! 👷🧠
Scientific definition

labor resources refer to the human effort-both physical and mental- used in
the production of goods and services. It includes the skills, knowledge, and
time contributed by workers. Labor is a primary factor of production and is
compensated through wages and salaries.

Simple Definition:

Any physical or mental work done in return for money is called labour.

➡ Whether it’s lifting bricks or solving math problems — if you’re paid for it,
it’s labor!

Income of Labor = Wages 💰

Examples of Labor:

• Teacher explaining concepts 👩🏫

• Farmer working in a paddy field 🌾
• Engineer designing a robot 🤖
• Nurse caring for patients 🩺

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Unique Characteristics of Labor 🔍

1. Labor is inseparable from the laborer

You can’t separate a person from the work they do!

➡ You hire the person — not their work stored in a jar!

2. Labor is sold in person, not stored or transferred

It must be performed in real-time. You can’t store yesterday’s effort!

3. Labor is perishable ⏳

If not used today, it’s gone forever.

➡ Wasted time = wasted labour!

4. Weak bargaining power

Most labourers can't demand better wages or conditions easily, especially in

low-skill sectors.

5. Wage changes don’t affect supply immediately.

If wages go up or down, people don’t instantly enter or leave jobs.

6. Labor supply can’t be rapidly changed.

You can’t suddenly create more workers or reduce them overnight.

➡ It takes time to train and grow the workforce.

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Division of Labor – Teamwork Makes the Dream
Work! ⚙🤝
Scientific definition

labor resources refer to the human effort-both physical and mental- used in
the production of goods and services. It includes the skills, knowledge, and
time contributed by workers. Labor is a primary factor of production and is
compensated through wages and salaries.

Simple Definition:

Division of labour means breaking a task into smaller parts, so each person can
focus on what they do best.

➡ This boosts both efficiency and productivity!

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Advantages of Division of Labor ✅

1. Increased Productivity

• Specialization = more output in less time!

2. Improved Skills

• Repetition helps workers become experts fast!

3. Encourages Inventions

• Focused workers find smarter ways to get things done.

4. Easier Introduction of Machinery

• Machines can replace repetitive tasks easily.

5. Time-Saving

• No switching between jobs — just focus and go!

6. Saves Tools and Implements

• Fewer tools are needed when everyone does a specific job.

7. More Job Variety Available

• Diverse skills = diverse job roles in society!

8. Large-Scale Production

• Businesses can produce massive amounts efficiently.

9. Right Job for the Right Person

• People do what they’re best at — leading to better results and

satisfaction.

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Disadvantages of Division of Labour ⚠⚙

1. Monotony
• Doing the same task over and over again = boring!
2. Retards Human Development Workers only master one skill, limiting their
overall growth.
3. Loss of Skill 🧠⬇ Focus on one job means forgetting how to do others.
4. Industry Dehumanizes the Worker 🤖 Workers become like machines —
no creativity or freedom.
5. Risk of Unemployment 📉 If a specific task or role is no longer needed,
the specialist loses their job.
6. Disruption of Family Life 🏠⚡ Long, repetitive hours in factories can
strain home life and relationships.
7. Evils of the Factory System 🏭 Pollution, poor working conditions, and
exploitation often come with mass production.

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3.Capital – The Backbone of Production 🏭💰
Scientific definition

In economics, capital refers to man-made resources used in the production of

goods and services. It includes physical assets such as machinery, tools,
buildings, and equipment that enhance productivity. Capital is a key factor of
production, distinct from land and labor, and is not consumed in the production
process but used repeatedly.

Capital isn’t just money — it’s everything man-made that helps produce goods

Different Definitions in Different Subjects:

• Book-keeping: Capital = Money invested in the business.

• Commerce: Capital = Financial assets and company-owned wealth.
• Economics: Capital = Man-made resources used for production. ➡ It’s
wealth used to create more wealth!

Types of Capital 📦

1. Human Capital 🧠 Skills, knowledge, experience of workers — YOU are

capital too

2. Physical (Man-Made) Capital 🏗 Tangible tools and equipment used in

production.

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Key Features of Capital ✨

• Man-made (not natural — we build it!)

• Used to produce more wealth
• Reusable over time
• Can be private or public

Examples of Capital:

• Machines ⚙
• Tools and equipment 🛠
• Factories and warehouses 🏭
• Raw materials 📦
• Transport vehicles 🚛

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Who is an Entrepreneur?
In economics, an entrepreneur is a person who brings together the other
factors of production—land (🌍), labor (👷♀), and capital (🏭)—to create
goods or services. They take risks (🎯), spot opportunities (🔍), and aim to
make profit (💰).

The Basics:

• Entrepreneurs start businesses: They come up with new ideas or improve

existing ones.
• They invest time, effort, and money to turn ideas into reality.
• They play a key role in economic growth by creating jobs and innovation.

Key Features of Entrepreneurs:

1. Innovative (💡) – They think creatively and solve problems in new ways.

2. Risk Takers (⚠) – Starting a business involves uncertainty, and they’re

willing to face it.

3. Decision Makers (🧠) – They make important choices about what, how, and
for whom to produce.

4. Resource Managers (🔧) – They organize and combine land, labor, and capital
efficiently.

5. Profit Seekers (💸) – They aim to earn profit as a reward for their efforts
and risk.

6. Persistent and Resilient (🔥) – Even when things go wrong, they keep going
and learn from failures.

In short: Entrepreneurs are like the engines (🚗) of the economy—they drive
innovation, create jobs, and push society forward with new products and
services.

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