ECO 110: Introduction to Microeconomics -
Summary
1. Meaning and Scope of Economics
Economics is the study of how individuals and societies use scarce resources to satisfy unlimited
wants. Main definitions include: - Wealth Definition (Adam Smith) - Welfare Definition (Alfred
Marshall) - Scarcity Definition (Lionel Robbins) Key Concepts: - Scarcity: Limited resources. -
Opportunity Cost: The value of the next best alternative foregone. - Production Possibility Frontier
(PPF): Shows combinations of goods that can be produced efficiently.
2. Demand Theory
Demand is the quantity consumers are willing and able to buy at various prices. Law of Demand:
When price falls, quantity demanded increases (ceteris paribus). Factors affecting demand: - Price
of the good - Income - Prices of related goods (substitutes & complements) - Tastes and
preferences - Population - Expectations - Advertisement Exceptions: - Giffen Goods - Veblen
Goods Changes in Demand: - Movement along curve: caused by price change. - Shift of curve:
caused by other factors.
3. Supply Theory
Supply is the quantity producers are willing to offer at different prices. Law of Supply: When price
rises, quantity supplied increases. Factors affecting supply: - Cost of production - Technology -
Taxes and subsidies - Weather - Objectives of firm - Prices of competing goods - Infrastructure and
stability Changes in Supply: - Movement along curve: price change. - Shift of curve: other factors.
4. Market Equilibrium
Equilibrium occurs where quantity demanded equals quantity supplied. Disequilibrium: - Excess
demand (shortage) → prices rise. - Excess supply (surplus) → prices fall. Government Intervention:
- Maximum (Ceiling) Price → causes shortage. - Minimum (Floor) Price → causes surplus. Cobweb
Theory: Explains price fluctuations in agricultural markets due to time lags in production.
5. Elasticity
Summary
1. Meaning and Scope of Economics
Economics is the study of how individuals and societies use scarce resources to satisfy unlimited
wants. Main definitions include: - Wealth Definition (Adam Smith) - Welfare Definition (Alfred
Marshall) - Scarcity Definition (Lionel Robbins) Key Concepts: - Scarcity: Limited resources. -
Opportunity Cost: The value of the next best alternative foregone. - Production Possibility Frontier
(PPF): Shows combinations of goods that can be produced efficiently.
2. Demand Theory
Demand is the quantity consumers are willing and able to buy at various prices. Law of Demand:
When price falls, quantity demanded increases (ceteris paribus). Factors affecting demand: - Price
of the good - Income - Prices of related goods (substitutes & complements) - Tastes and
preferences - Population - Expectations - Advertisement Exceptions: - Giffen Goods - Veblen
Goods Changes in Demand: - Movement along curve: caused by price change. - Shift of curve:
caused by other factors.
3. Supply Theory
Supply is the quantity producers are willing to offer at different prices. Law of Supply: When price
rises, quantity supplied increases. Factors affecting supply: - Cost of production - Technology -
Taxes and subsidies - Weather - Objectives of firm - Prices of competing goods - Infrastructure and
stability Changes in Supply: - Movement along curve: price change. - Shift of curve: other factors.
4. Market Equilibrium
Equilibrium occurs where quantity demanded equals quantity supplied. Disequilibrium: - Excess
demand (shortage) → prices rise. - Excess supply (surplus) → prices fall. Government Intervention:
- Maximum (Ceiling) Price → causes shortage. - Minimum (Floor) Price → causes surplus. Cobweb
Theory: Explains price fluctuations in agricultural markets due to time lags in production.
5. Elasticity
