This is about microeconomics. This will cover only basic and starting concepts of microeconomics. This will cover microeconomics consumer and effects of his actions.

1. An Introduction to
Microeconomics
By Hassan Aftab

2. Introduction
• Microeconomics is a branch of economics that
deals with the study of economic behavior of
unit.
• A unit can be:
– an individual
– a firm

3. Basics
• Basically microeconomics is the study of
Consumer and Producer.
• Consumer and Producer are the two basic
components of microeconomics.
• The consumer demands for goods, producer
supply goods.

4. Human Behavior
• The most important question of
microeconomics is not how demand and
supply meet. It is how human behavior affects
them.
– If demand increases, it is because of certain
human behavior, if demand decreases, it is
because of certain human behavior
– If supply increases, it is because of certain human
behavior, if supply decreases, it is because of
certain human behavior

5. Human Behavior
• Human behavior depends upon ideology of
humans.
• There are basically two ideologies in the
world.
1. Muslim Ideology
2. Materialistic / Capitalistic Ideology

6. Materialistic / Capitalistic Ideology
• In Materialistic / Capitalistic ideology, a person claims
to be the owner of what he earns.
• People try to surpass others in terms of showing off.
• In such society, some people suffer from superiority
complex, some suffer from inferiority complex.
• In such society producers try to make more and more
revenue. So they raise the prices of goods and poor
people suffer.
• The reason of them raising prices is simple. Increase in
demand. As the demand from consumer increases. The
prices are bound to increase.

7. Continued…
• In such societies rich become richer, while poor
become poorer.
• Today we see a lot of demand of pork meat or
alcoholic drinks.
• Billions of dollars are being spent on these goods
nowadays. People do not care that these are
injurious to health.
– Pig meat causes “Swine flu” and is loaded with toxins
– Alcoholic drinks can cause cancer, anemia and many
other diseases

8. Continued…
• Despite of all the issues these goods cause to
health, they are being used heavily. Their demand
is increasing. So their supply is increasing. People
are buying themselves serious some serious
diseases.
• If the demand of these goods reduces, then
supply will reduce itself.
• The billions of dollars that are being spent on
these items can be spent on basic needs of
human beings.

9. Continued…
• If the money that is being spent on the items
that are injurious to health, is spent on basic
needs then the world will become a better
place to live.
• This can be done by the consumer side. If the
demand will reduce, the supply will reduce.

10. Islamic Ideology
• In islamic ideology, we believe that Allah is the
owner of all that is present in this universe. So
we donot spend money on things that are
prohibited in Islam.
• The items like alcohol, pork meat are
prohibited in Islam, so the money which was
first being spent to these goods can now be
used to make things that are good for human
beings.

11. Continued…
• In the islamic ideology, it is clearly stated what
is right and what is wrong, what is
halal(allowed) and what is haram(forbidden).
Science also proves that, the things which are
prohibited in islam are harmful for humans,
and the things that are allowed in Islam are
beneficial for humans.

12. Continued…
• True islamic ideology means good governance.
• Umar’s law which is implimented in
scandinavian counteries is an implimented
example of islamic ideology.
• Well that is concerned with macroeconomics.

13. Continued…
• Dealing with microeconomics, as we know we
have consumer and producer.
• In the views of Islamic ideology, let’s first
discuss consumer.
• Here consumer can be of two types.
1. Moderate Consumers
2. Immoderate Consumers

14. Moderate Consumers
• Moderate consumers are the consumers who
demand only the part they need.
• They do not buy extra
• They do not show off
• Because of them the demand remains at
equilibrium.
• When demand remains constant, the prices of
goods remain constant.
• Goods are available for everyone.
• There is low risk of black marketing.

15. Immoderate Consumers
• Immoderate consumers buy more than they need.
– Income = Saving + Consumption
– Saving = Income – Consumption
• So when consumption increases saving decreses.
• Low saving causes Conspicuous consumption
• For any country to progress, good saving is very
improtant. Globally acceptable saving is minimum 20%
– Pakistan’s current saving is around 14%
– India around 20%
– China around 40%

16. Immoderate Consumers
• Low saving causes
– Low investment
– Low productivity
– Low Income
Low income causes Poverty
– Unemployment
• When consumption increases
– Import > Export

17. Continued…
• This also causes
– Deficit in BOP
– Deficit in Budget
• Also called dual deficit
• Another effect is Profiteering
–Π=R–C
– To increase profit they need maximum revenue
and minimum cost of manufacturing

18. Continued…
• With increase in demand
– Prices increase
– Wages decrease
– These two are called exploitation
• Some more effects include
– Corruption and crimes
– Demonstration effect
– Frustration