Course Title

Microeconomics

Chapter-1 Introduction

Course Instructor
Dr. Venkatraja
 Meaning & Definition

The word ECONOMICS is derived from two Greek words-

‘oikos’ =household &

 ‘nomos’=management

Economics=household management
The word Economy is derived from Greek word
‘oikonos’ = one who manages a household.
 Adam Smith
• Father of Economics
• Book- An Inquiry into the Nature and Causes of Wealth of Nations
• Published in 1776
• He defines Economics as “science of wealth”
Alfred Marshall
• Principles of Economics
• 1890
• “Economics is the study of mankind in the ordinary business of life.”
Prof.L.Robbins
• The Nature and Significance of Economic Science
• 1932
• “Is a science which studies human behaviour as a relationship
between ends and scarce means which have alternative uses.”
 Micro Economics & Macro Economics
Micro Economics
Meaning
Studies the economic behaviour of
individual economic unit
Methodology
Slicing Method=splits up the economy
into smaller parts for study
Domain
Theory of pricing –product & factor prices
Limitations
• Based on wrong assumption-perfect
competition, full employment etc.
• No light on functioning of national
economy.
Pioneer
Dr. Alfred Marshall – “Principles of
Economics”-1890
Macro Economics
Studies the economic behaviour of all
the units taken together
Lumping Method= average & aggregate
study
Theory of income, output and
employment
• Excessive generalisation
• Lumping the sectors which are not
homogeneous
John Maynard Keynes - “General Theory
of Employment, Interest and Money”-
1936
Decision Making Process

Five Steps
 Case Study: Decision making process –
Xerox Corporation's Experience

Define the problem:

 Invented copying machine in 1959
 No competition until 1969
 In 1979 found unable to compete with Japanese
copiers
 Competitors were of better quality & cheaper
Determine the objective:
 Had to decide whether try to stay in competition or
leave to competitors
 Decided to stay in the market & compete
Identify possible solutions:
 Improve quality
 Reduce costs
 Import efficient parts & components from Japan
 Transfer entire production of copiers to Fuji Xerox, its
subsidiary
Select best possible solution:
 Direct involvement of Fuji Xerox
 Import components that Fuji Xerox could best
produce in Japan
Implement the decision:
 Increased employee involvement
 Reduced inventories
 Used Fuji to produce parts, monitor quality control
program & customer satisfaction.