BA LLB-113

    Economics-I:
    Micro Economic Analysis
 SYLLABUS
• Unit-I:Introduction to Economics                      
  

a. Definition, methodology and scope of economics 

b. Forms of economic analysis – Micro vs. macro, partial vs. general, static vs.
dynamic, positive vs. normative, short run vs. long run
c. Basic concepts and precepts – economic problems, economic rationality,
optimality  
d. Economic organization – market, command and mixed economy 
e. Relation between economics and law – various dimensions. 
• Unit-II:Demand and Supply   

a. Theories of demand - demand function, law of demand Concept

of utility and utility theory-utility approach, indifference curve
approach  
 b. Law of supply, supply function  
c. Price determination; shift of demand and supply 
d. Elasticity of demand and supply; consumer surplus   
e. Applications of demand and supply –tax floor and ceilings;
applications of indifference curves-tax, work
• Unit III:Production Analysis, costs and market structure 
• a. Concepts of Production- production isoquants, returns, returns to factor,
returns to scale  
b. Cost and revenue concepts 
c. Classification of markets-pure & perfect competition; monopolistic and
imperfect competition; monopoly, duopoly and oligopoly; cartels; Concept of
Dumping 
• Unit IV:Theory of determination of factor prices, rent, interest, wages and profit  
a. Labour supply and wage determination 
b. Role of trade unions and collective bargaining in wage
determination; minimum wage legislation 
c. Exploitation of Labour
ECONOMICS AS SOCIAL SCIENCE

Economics as a social science studies economic behaviour of the people

and its consequences.

ECONOMIC BEHAVIOUR- Economic Behaviour is essentially the process

of evaluating economic oppurtunities open to an individual or a society
and, given the resources, making choice of the best of the oppurtunities.
 Definition of Economics Economics has been variously defined.
As summarised by Samuelson, some of the definitions seek to explain that economics:-

• analyses how a society’s institutions and technology affect prices and the allocation of
resources among different uses. 
• explores the behaviour of the financial markets, including interest rates and stock prices. 
• examines the distribution of income and suggests ways that the poor can be helped without
harming the performance of the economy.
•  studies the business cycle and examines how monetary policy can be used to moderate the
swings in unemployment and inflation. 
• studies the patterns of trade among nations and analyses the impact of trade barriers. 
• looks at growth in developing countries and proposes ways to encourage the efficient use of
resources.
•  asks how government policies can be used to pursue important goals such as rapid
economic growth, efficient use of resources, full employment, price stability, and a fair
distribution of income. 
 THE SCOPE OF ECONOMICS-
(I) MICROECONOMICS- Microeconomics is concerned with
microscopic study of the various elements of the economic system
and not with the system as a whole.
• Microeconomics is the study of economic behaviour of individual
consumer and producer and of individual economic variables, i.e,
production and pricing of individual goods and services.
• Microeconomics studies how consumers and producers make their
choices ; how consumers and producers interact to settle the prices
of goods and services in the market; and how total output is
distributed among those who contribute to production.
 • Theory of consumer behaviour
• Theories of production
• Theory of commodity and factor
pricing 
Briefly • Efficient allocation of output and
speaking, factors of production( called
welfare economics)
  constitute the main themes of
microeconomics. 
 (II) MACROECONOMICS
• Macroeconomics is the study of the nature, relationship and behaviour
of aggregates and averages of economic quantities.
• Macroeconomics covers large collections of economic units, their
aggregates and averages and macrovariables like national income,
employment, and so on.
• Macroeconomics is a branch of economics that studies how an overall
economy—the markets, businesses, consumers, and government
behave.
• Macroeconomics in its modern form is often defined as starting with
John Maynard Keynes and his theories about market behavior and
governmental policies in the 1930s; several schools of thought have
developed since.
 Branches of economic studies :-

1. Development Economics- It deals with the factors that determine economic

development and growth of a country.
2. Public Economics- It examines economic role of the government, sources of
government revenue, governent fiscal policy, effects of taxation and public
expenditure, causes and consequences of budgetery and fiscal deficits.
3. Monetary Economics- It studies the monetary affairs of the country including
demand for and supply of money, working of the money market, credit and
financial market, and management of monetary sector.
4. International Economics- It studies the causes and consequences of
international trade in goods and services.
5. Industrial economics- It is concerned with the working, growth and
structures of the industrial sector.
6. Labour economics- It examines the problem faced by labour as an
economic class and problem associated with labour organisations, labour
productivity and wages, exploitation of labour.
7. Econometrics-  Econometrics is the application of statistical methods to
economic data in order to give empirical content to economic relationships.
8.Financial economics- Financial economics is a branch of economics that
deals with various financial markets. Financial economics is a branch of
economics that analyzes the use and distribution of resources in markets.
9.Regional economics-  It refers to the economics advantage of a
geographical location and human activities of greatest height to contribute
maximally to the general growth and prosperity of the region.
•10.Environmental economics- It examines how industrial growth affects,
rather destroys, natural environment of
the country.Environmental economics is a sub-field of economics concerned
with environmental issues. It has become a widely studied subject due to
growing environmental concerns in the twenty-first century.
•11. Managerial economics- Managerial Economics is a science dealing with
effective use of scarce resources. It guides the managers in taking decisions
relating to the firm’s customers, competitors, suppliers as well as relating to the
internal functioning of a firm. It makes use of statistical and analytical tools to
assess economic theories in solving practical business problems
•12. Economic History- Economic history is the study of our past development,
particularly in relation to economics, labour, and business. It includes, for
example, the economic development of nations, the growth of business
enterprise, and the organisation of work.
 * Economic methodology is the
philosophy of science applied in the
economy.
Philosophy of science examines the
METHODOLOGY nature of assumptions,types of causality,
forms of explanations used in science, etc.
OF ECONOMICS:
What economists * The main methodological views on
do and how? economic theory correspond to the three
areas of the philosophy:-
positivism (Comte, Mill), 
neo-positivism (Carnap, Reichenbach), 
and post-positivism (Popper, Lakatos)
 POSITIVISM
• Positivism is the name for the scientific study of the social world. Its goal
is to formulate abstract and universal laws on the operative dynamics of
the social universe. 
• A law is a statement about relationships among forces in the universe.
• In positivism, laws are to be tested against collected data systematically.
• Positive economics is the objective analysis of the economic study.
• This involves investigating what's happened versus what is happening,
allowing economists to predict what will happen in the future.
 Neo positivism-
• Neo positivism can be seen as a later phase of positivism,
committed to the idea of an objective reality and empiricism,
with a preference, increasingly, for deduction over induction.
• Neo positivists consider sound scientific methodology to be
the first principle of sociological analysis.
• For them sound scientific methodology
involves mathematical and other formal models that
incorporate formalization of variables.
 POST- POSITIVISM

• Postpositivists believe that a reality exists, but, unlike

positivists, they believe reality can be known only
imperfectly. 
• Postpositivists also draw from social constructionism in
forming their understanding and definition of reality.
 MACRO V/S MICRO
PARTIAL V/S GENERAL
FORMS OF
ECONOMI STATIC V/S DYNAMIC
CS-
POSITIVE V/S NORMATIVE 
SHORT RUN V/S LONG RUN
                     PARTIAL V/S GENERAL 
Partial equilibrium General equilibrium

It considers effect of only two It considers effect of many

variables at a time keeping other variables at a time.
factors constant. It takes into account the
It neglects interdependence interdependence between
between variables. variables.
Micro-economic analysis is based Macro-economic analysis is
on partial equilibrium. based on general equilibrium.
                   STATIC V/S DYNAMIC

• The word ‘static’ has been taken from physical science. 

• It points to a position of complete rest In other words, by static is meant a position where
there is the absence of any movement. But the concept of statics has its different meaning in
economics. It does not point to a position of complete rest or no movement. 
• In economics, the concept of static refers to a situation where there is a movement. But this
movement is continuous, certain, regular and constant. Static economics does not deal with
the unexpected changes. It studies only the expected economic activities. There are no
windfall changes or fluctuations in economic activities. 
• According to Prof. Harrod, “An economy in which rates of output are constant is called static.” 
• The concept of dynamics is derived from Physics. It refers to a state
where there is a change such as movement. Tides of the sea, a bird flying
in the sky are examples of dynamics. But the word ‘dynamic’ has a
different meaning in economics.
• The concept of dynamics is nearer to reality. 
• In dynamic economics we study the economic variables like consumption
function, income and investment in a dynamic state.
•  In the real world, economic variables like population, capital, techniques
of production, fashions, habits, etc. do not change at a constant rate. The
rate of change is different at different times.
 •  Positive economics is related
to the analysis which is limited
to cause and effect
POSITIVE relationship.
V/S •  On the other hand, normative
economics aims at examining
NORMATI real economic events from the
VE- moral and ethical point of
view. It is used to judge
whether the economic events
are desirable or not.
 BASIS FOR COMPARISON POSITIVE ECONOMICS NORMATIVE ECONOMICS

Meaning A branch of economics based on data and facts A branch of economics based on values, opinions and
is positive economics. judgement is normative economics.

Nature Descriptive Prescriptive

What it does? Analyses cause and effect relationship. Passes value judgement.

Perspective Objective Subjective

Study of What actually is What ought to be

Testing Statements can be tested using scientific Statements cannot be tested.

methods.

Economic issues It clearly describes economic issue. It provides solution for the economic issue, based on
value.
 SHORT RUN V/S LONG RUN 
• Short run economics broadly captures the future of an enterprise,
industry, or economy where input costs are fixed and other costs are
variable (at least one input is fixed). This is commonly attributed to the
short timespan that allows for little change to be made. The short run
mainly falls under the concept of microeconomics. 
• Long run economics, on the other hand, generally points to a further
outlook into the future. In the long run, all inputs and decisions in an
economy or organization are flexible. An enterprise can move freely with
respect to adjustments, large or small. The long run approach of a
company is largely dependent on macroeconomics and the condition of
the economy as a whole. In the long run, organizations can also react to
the market with ease (by increasing or decreasing production).
 • The three Central Problems of an Economy are-

ECONOMIC • What to Produce and in What Quantity?

PROBLEMS • How to Produce? 
• For Whom to Produce?
 1. What to Produce
This problem refers to the decisions regarding the selection
of different commodities and the quantities that need to be
produced. Labour, land, machines, capital, equipment,
tools and natural resources are limited. So, it is not possible
to fulfil society’s every demand. Therefore, it is important
to decide what goods and services are required to be
produced and in what quantity?
 2. How to Produce?
This problem is about the choice of techniques that need to be adopted and used
in the production of goods and services. The two majorly-used techniques are-
Labour Intensive Techniques-In this technique more units of labor in proportion
to capital are used in the production process.
Capital Intensive Techniques-On the other hand, the Capital Intensive Technique
involves more capital and less utilization of labor. 
For instance, footwear can be manufactured either in factories where a large
portion of manufacturing is carried out by machines or by skilled teams of
cobblers.
3.For Whom to Produce?

One of the most crucial problems of the economy is to decide

which commodities shall be produced for which sections of
society. For instance, essential goods and services are in
demand from all sections of society, but only certain sections
of society have a demand for luxury commodities. At the same
time, choices of goods and services rest on prevalent tastes
and preferences in an economy. Hence, considerations
regarding the socio-economic conditions of a country or
market are highly pertinent to this problem.
ECONOMIC SYSTEM
 ( Types of economy)
TRADITIONAL ECONOMY

MARKET ECONOMY

MIXED ECONOMY

COMMAND ECONOMY
 •  It is said that every economy in the world
is unique in some way or another.
•  No two economies are identical. 
• However, these economies do share many
Types of of the same features and characteristics. 
• So economists have been able to identify
Economy: four different types of economy –
•  traditional economy,
•  command economy,
•  market economy 
• and mixed economy.
 Traditional Economic System 

• This economic system retains essential characteristics in

which there is a very little specialisation or division of
labour.
• A traditional economic system is most likely to be found in
rural settings, or in such developing nations where farming
is predominant. Such settings usually have very few
resources to share.
Market Economic System

• A market economic system or capitalist economy

involves very less government interference and
incorporates the principles of the free market. There is a
scant exercise of control over resources. Market forces
regulate demand and supply.
• However, there does exist some degree of government
intervention in the form of regulations against
monopoly, and in favour of fair trade.
Command Economic System 

• Command or Socialist economic system has a

dominant centralised authority in the form of
government. The economy is such a country that is
controlled by the government. It is the sole decision-
making authority for determining production and
allocation.
• Ideally, the command system takes into consideration
the best interest of its populace.
 Mixed Economic System 

• A mixed economic system combines the

features of both socialist and free-market
economic systems. It is also known as a dual
system. Most of the countries today have a
mixed economic system with the existence of
both public services as well as private
industries.
 •  Economic agents are actors who
intervene in the economy under
certain rules determined by
the economic
ECONOMIC system and economic institutions. 
AGENTS- • They make decisions trying to
resolve an optimization or choice
problem. In this process, they mold
the economy; for example, they
decide the distribution of goods
and services, taxes, laws, tariffs,
etc.
 • Families are a domestic group
defined by the U.S. Census as
"a group of two people or
Economic more (one of whom is the
agent: householder) related by birth,
marriage, or adoption and
families  residing together; all such
people (including related
subfamily members) are
considered as members of one
family".
 • Firms try to maximize their utility
(economic benefits) for their
shareholders. To achieve this, firms use
factors of production (land, labor, and
Economic capital) to produce goods and
agent: services,creating value and wealth.

firms They demand labor from families for a

salary, also they employ capital
(machines, vehicles, computers, etc) in
exchange for interest, and land for rent.
Finally, They offer goods and services
for the families, other firms or the
government.
 • Governments provide most of the
rules for how the rest of economic
agents should interact. They offer
Economic goods and services (mostly public
goods and services like roads or
agent: national security) through national
governmen companies or in association with
private firms.
t
Governments demand goods from
firms and labor from families. But
also they tax them based on its
income, profits, wealth, etc
 • Central Banks manage country
currency, money supply, and
Economic interest rates. Through
monetary policies, they can
agent: increase the money supply in
Central the economy or modify the
Banks interest rates to incentivize or
disincentivize consumption,
savings or investments.
RATIONALITY  IN ECONOMICS-
• What is meant by rationality in economics?
• Rationality, for economists, simply means that when
you make a choice, you will choose the thing you like
best. This is very different from the way we normally
think about rationality. Usually when we talk about
rationality we use it to mean sensible, or reasonable
 • Pareto efficiency, or Pareto optimality,
OPTIMALIT is an economic state where resources
cannot be reallocated to make one
Y IN individual better off without making at
ECONOMICS least one individual worse off.
•  Pareto efficiency implies that resources
- are allocated in the most economically
efficient manner, but does not imply
equality or fairness.
•  An economy is said to be in a Pareto
optimum state when no economic
changes can make one individual better
off without making at least one other
individual worse off.
• The idea of socio-economic offences in India outlined in India’s
47th Law Commission Report is critical. 
• According to the study, socioeconomic crimes are social offences
that have an impact on the health, morals, social, or overall well-
being of the community as a whole, rather than just the individual
victim.
•  Economic offences are those that are harmful to society’s
economy and endanger not only individual money but the entire
economic structure of a country.
 There are certain striking features of economic offences that
differentiate the same from other kinds of crimes. These
characteristics are as follows:
• (i) An economic offence needs to have the required actus
reus and mens rea before the commission or omission of the
CHARACTERIS act.
• (ii) The intention behind committing an economic offence is
TICS OF to have some kind of material advantage or to avoid or
reduce some kind of material loss. The motive can also be of
ECONOMIC causing some kind of a material loss to the third party with
CRIMES- complete knowledge of such loss.
• (iii) Economic offences generally imply the existence of
certain elements like a breach of trust, deception or
cheating.
• (iv) Economic offences generally don’t involve any kind of
physical harm caused by its commission.
• (v) This kind of crime is mostly committed by the privileged
or the upper-class section of the society, who have access to
such economic or business activities as well as the required
resources.
 Economic offences in India can be classified into
three categories. These categories of economic
TYPES offences are:

OF (i) Traditional economic crime which includes

corruption, smuggling, bogus imports etc.
ECONOM
IC (ii) Emerging technological economic crimes
that include credit card frauds,cyber crimes etc.
CRIMES
(iii) Crimes through which proceeds of
transnational organized crime are transmitted
abroad like money laundering.