Learn Economics by Dr. Swati Gupta

  Meaning, Scope, Importance and Limitations  of Macro  Economics Macro Economics : The term ‘Macro’ is also derived from the Greek word ’Macros’ which means large. Macroeconomics deals with the gross aggregates of the economic system rather than with the individual part of it, that’s why it is called “aggregative economics.” According to Kenneth. E. Boulding , “ Macroeconomics deals not with individual quantities as such, but with aggregates of these quantities, not with individual income, but with national income, not with individual prices but with price levels, not with individual outputs but with national output .” Macroeconomics was largely the result of the book, “The General Theory of Employment, Interest, and Money” written by John Maynard Keynes. This book has analytically studied what causes large and prolonged fluctuations in the level of employment. Macroeconomics deals also with how an economy grows. It analyses the chief determinants of economic developmen...

  Meaning, Scope, Importance and Limitations  of Micro  Economics Micro-Economics: The term ‘Micro’ is derived from the Greek word ‘Mikros’ which means small. The concept of microeconomics was introduced by Ragnar Frisch. Microeconomics studies individual units like individual household, pricing of a firm, wages of a worker, profits of an entrepreneur, etc. According to  Maurice Dobb , “Micro-economics is in fact a microscopic study of the economy.” In short, microeconomics is the study of the economic behaviour of individual consumers, firms, and industries and the distribution of production and income among them. In Microeconomics, Economy is divided into various small units and each unit is analysed in detail. It is called slicing method. Scope of Micro Economics: 1. Theory of product pricing, which includes: 1.1 Theory of consumer behaviour: For a consumer point of view, it studies the behaviour of a consumer how he spends his limited income on th...

  Cost Output Relationship in the Short Run The  relation between the cost and output is technically described as the “Cost Function”. Cost function can be stated as follows: C= f[Q,W,F,T] Where C= Cost              Q= Amount of production              W= prices of factors of production              F= Productivities of factors of production             T= Improvements in techniques of production These are also called the determinants of the cost of production. Short-run cost production function: Short-run is a period of time within which the firm can vary its output by varying only the quantity of variable inputs such as labor, and raw materials while fixed inputs like plant, machinery, etc, remain constant. As the quantity of variable inputs is...

Cost Output Relationship in the Long Run The long-run cost-output implies the relationship between the changing scale of the firm and the total output. In the long run, only the average cost is important and considered in taking long term output decisions. The long-run average cost is the long-run total cost divided by the level of output. It is the least possible cost of producing the given level of output when all the factors are variable. Long-run average cost curves will normally be U-shaped just as short-run curves are, but they will always be flatter than the short-run ones. The reason is obvious that the scale of operations of the firm can be changed and all the costs become variable because there are no fixed factors in the long run. Over a long period, the size of the plant can be changed, unwanted buildings can be sold, and administrative and marketing staff can be increased or decreased to deal efficiency and can be used more economically. Thus, the average cost will be ...

Meaning and types of cost Cost of production refers to the total monetary expenses incurred on various inputs, employed in the production of the commodity or we can say that it refers to the total money expenses incurred by the firm in the process of transforming inputs into outputs. Types of Costs: The types of costs are as follows: Money cost and Real Cost: Money cost relates to all the expenditures which are made in the terms of money such as cost of raw materials, wages of the labors, payment of rent, Interest on capital, expenses on fuel, power, transportation, and many other production-related costs. It is also called the nominal cost or expenses of production. The real cost is expressed in terms of the efforts, exertions, discomforts, sacrifices, and inconveniences bear by all factor owners in the production of the commodity. Adam Smith regarded pains and sacrifices of labor as a real cost. Marshall called it the social cost. Explicit costs and Implicit costs: Explicit costs are...