Introductory Microeconomics

Resources within the society are scarce when compared to the needs of various goods and services. Because of the scarcity of resources, it is crucial to allocate resources efficiently. 

Central Problems of an Economy

Creation, trade, and utilisation of labour and products are among the essential financial exercises of life. In the course of these activities, every society faces a scarcity of resources which gives rise to various economic problems. The focal monetary issues of an economy are all the time summed up as follows:

• Each public should settle on the amount of every one of the numerous potential labour and products it will deliver. For example, whether to produce more food, clothing, housing or to have more luxury goods

• Each public needs to settle on the amount of which assets to use in the creation of every one of the various labour and products. For example, whether to use more labour or more machines

• Society has to decide who gets how much of the goods produced in the economy

• In addition, the choice between public and private goods. 

The assortment of all potential mixes of the labour and products that can be created from a given number of assets and a given load of innovative information is known as the creation plausibility set of the economy.

Production Possibility Frontier

• It is a point in the curve that shows the maximum amount of a good that can be produced in the economy for any given amount of another good and vice-versa
• The production possibility frontier gives the combinations of goods that can be produced when the resources of the economy are fully utilised
• In this above figure, AE represents the production possibility curve which shows the various combinations of the two goods (e.g., Cotton and Corn) which the economy can produce with a given number of resources
• A point lying rigorously underneath the creation probability outskirts addresses a mix of merchandise that will be delivered when all or a portion of the assets are either underemployed or are used inefficiently

Opportunity Cost

• It is also called economic cost.
• It is the cost of having a little more of one good in terms of the amount of the other good that has to be forgiven
• Simply, the opportunity costs of a product are only the best alternative for and not any other alternative

Organization of Economic Activities

Centrally Planned Economy

• In a halfway arranged economy, the public authority or the focal power designs every one of the significant exercises in the economy
• Extremely significant choices with respect to creation, trade and utilisation of labour and products are made by the public authority
• The central authority decides allocation of resources and a consequent distribution of the final combination of goods and services
• The government is also responsible for the equitable distribution of the final mix of goods and services

Market Economy

• In a market economy, all monetary exercises are coordinated through the market
• All goods or services come with a price that is mutually agreed upon by the buyers and sellers and at which the exchanges take place
• In a market economy, the price reflects society’s valuation of the good or service. Therefore, if the buyers demand more of a certain good, the price of that goodwill rise and vice versa
• Moreover, the price and consumer demand for goods or services are the important determinants of production in a market economy

Conclusion

Today, most of the economies are mixed economies where some important decisions are taken by the government and the economic activities are by and large conducted through the market. In reality, all the economies in one way or the other are mixed economies where some important decisions are taken by the government and the economic activities are by and large conducted through the market. The only difference could be the extent of government intervention in deciding the course of economic activities.Since Independence, the Government of India has played a major role in planning economic activities. Be that as it may, the job of the public authority in the Indian economy has decreased extensively over the most recent few decades.