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Lecture 1 
“Basics of Microeconomics”
Capstone IAS Learning
Page 2


Lecture 1 
“Basics of Microeconomics”
Capstone IAS Learning
What will we cover
What is Economy? 
Central Planned Economy Vs Market 
Economy. 
Market Equilibrium / “Invisible Hand”. 
Demand Side and Supply Side 
Concept of Cost of Production 
Market Structures(Perfect competition, 
Oligopoly etc).
Page 3


Lecture 1 
“Basics of Microeconomics”
Capstone IAS Learning
What will we cover
What is Economy? 
Central Planned Economy Vs Market 
Economy. 
Market Equilibrium / “Invisible Hand”. 
Demand Side and Supply Side 
Concept of Cost of Production 
Market Structures(Perfect competition, 
Oligopoly etc).
What is Economy?
Well, resources are scarce and desires are plenty. 
So, economy begins where we start to think about 
how to optimally utilise these scarce resources to 
fulfil our maximum desires(max satisfaction). 
Now there is another problem and that is “how 
should we distribute the goods and services, made 
from these resources, among the population?” 
Therefore, the allocation of scarce resources and 
the distribution of final goods and services are 
the central problems of any economy.
Page 4


Lecture 1 
“Basics of Microeconomics”
Capstone IAS Learning
What will we cover
What is Economy? 
Central Planned Economy Vs Market 
Economy. 
Market Equilibrium / “Invisible Hand”. 
Demand Side and Supply Side 
Concept of Cost of Production 
Market Structures(Perfect competition, 
Oligopoly etc).
What is Economy?
Well, resources are scarce and desires are plenty. 
So, economy begins where we start to think about 
how to optimally utilise these scarce resources to 
fulfil our maximum desires(max satisfaction). 
Now there is another problem and that is “how 
should we distribute the goods and services, made 
from these resources, among the population?” 
Therefore, the allocation of scarce resources and 
the distribution of final goods and services are 
the central problems of any economy.
Rich Vs Poor Countries
It’s not the country with maximum 
resources that is rich.  
It’s the country that utilises its 
resources most efficiently and 
optimally, that becomes rich . 
Venezuela has one of the highest gold 
and petroleum reserves, way more than 
Japan.  
Yet, Japan’s economy is way way bigger 
than Venezuela’s. 
Fun fact - Venezuela was 12 times 
richer than China at one point of time. 
So, efficient management of your 
resources can make you rich and 
mismanagement of these resources 
would create conditions for poverty.
Page 5


Lecture 1 
“Basics of Microeconomics”
Capstone IAS Learning
What will we cover
What is Economy? 
Central Planned Economy Vs Market 
Economy. 
Market Equilibrium / “Invisible Hand”. 
Demand Side and Supply Side 
Concept of Cost of Production 
Market Structures(Perfect competition, 
Oligopoly etc).
What is Economy?
Well, resources are scarce and desires are plenty. 
So, economy begins where we start to think about 
how to optimally utilise these scarce resources to 
fulfil our maximum desires(max satisfaction). 
Now there is another problem and that is “how 
should we distribute the goods and services, made 
from these resources, among the population?” 
Therefore, the allocation of scarce resources and 
the distribution of final goods and services are 
the central problems of any economy.
Rich Vs Poor Countries
It’s not the country with maximum 
resources that is rich.  
It’s the country that utilises its 
resources most efficiently and 
optimally, that becomes rich . 
Venezuela has one of the highest gold 
and petroleum reserves, way more than 
Japan.  
Yet, Japan’s economy is way way bigger 
than Venezuela’s. 
Fun fact - Venezuela was 12 times 
richer than China at one point of time. 
So, efficient management of your 
resources can make you rich and 
mismanagement of these resources 
would create conditions for poverty.
Production Possibility Set - 
the collection of all possible 
combinations of goods and 
services that can be produced 
from a given amount of 
resources and a given stock 
of technology, is called the 
Production Possibility Set of 
the Economy. 
Thus, there is always a cost 
of having a little more of 
one good in terms of the 
amount of other good that 
has to be foregone. This is 
known as the “Opportunity 
Cost” of an additional unit 
of the good.
100 Kg Wood
10 Chairs; 5 chairs+5tables; 10 tables; 
10 doors; 10 windows etc.
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FAQs on PPT: Basics of Microeconomics - Indian Economy for UPSC CSE

1. What is microeconomics?
Ans. Microeconomics is a branch of economics that focuses on the study of individual economic agents, such as households, firms, and consumers. It examines how these agents make decisions regarding the allocation of resources and how their interactions in markets determine prices and quantities of goods and services.
2. What are the key principles of microeconomics?
Ans. The key principles of microeconomics include supply and demand, opportunity cost, elasticity, market equilibrium, and marginal analysis. These principles help in understanding how individuals and businesses make decisions and how markets function.
3. How does microeconomics differ from macroeconomics?
Ans. Microeconomics focuses on the behavior of individual economic agents, such as households and firms, and their interactions in specific markets. On the other hand, macroeconomics studies the behavior of the entire economy, including factors like inflation, unemployment, and economic growth.
4. What is the role of government in microeconomics?
Ans. The role of government in microeconomics is to ensure the smooth functioning of markets and promote efficiency and fairness. Governments intervene through policies such as regulations, taxes, subsidies, and antitrust laws to correct market failures, protect consumer rights, and promote competition.
5. How does microeconomics affect everyday life?
Ans. Microeconomics has a significant impact on everyday life. It helps individuals make decisions about their personal finances, such as budgeting, saving, and investing. It also explains how prices of goods and services are determined, which influences our purchasing decisions. Additionally, microeconomics provides insights into the behavior of firms and industries, which can affect job opportunities and wages.
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