____________________________________________________________________________________________________
Subject Business Economics
Paper No and Title 1, Microeconomic Analysis
Module No and Title 1, Introduction
Module Tag BSE_P1_M1
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
,____________________________________________________________________________________________________
TABLE OF CONTENTS
1. Learning Outcomes
2. Introduction
3. Market Analysis
3.1 Demand Curve
3.2 Supply Curve
3.3 Market Equilibrium
3.4 Elasticity of Demand
4. Consumer Behaviour
4.1 Consumer Preferences
4.2 Budget Constraint
4.3 Consumer Choice
5. Objective of the Firm
5.1 The Production Function
5.2 Costs of Production
6. Pricing and Output Decisions under different market structures
6.1 Perfect Competition
6.2 Monopoly
6.3 Monopolistic Competition
6.4 Oligopoly
6.5 Bilateral Monopoly
7. Pricing Strategies
7.1 Marginal Cost Pricing
7.2 Mark-up Pricing
7.3 Price Discrimination
7.4 Factor Pricing
7.5 Peak-Load Pricing
8. Welfare Economics and Market failure
8.1 Welfare Economics: Basic Ideas
8.2 Market Failure
8.2.1 Externalities
8.2.2 Public Goods
8.2.3 Asymmetric Information
9. Summary
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
, ____________________________________________________________________________________________________
1. Learning Outcomes
After reading this module, you shall be able to
Gain an insight about microeconomics
Understand the various concepts of microeconomic theory including consumer choice,
firm’s objectives, their pricing strategies
Identify the normative issues of welfare in microeconomic theory
Analyze the various causes of market failure
2. Introduction
Microeconomics is the branch of economics based on the economic behaviour of small economic
units: consumers, firms, workers, savers, individual industries, markets and so on. All economic
decisions are ultimately made by individuals, and the totality of these decisions defines the
economic environment. Consumers decide how much of various goods to purchase, workers
decide what jobs to take, and firms decide how many workers to hire and how much output to
produce. Microeconomics encompasses the factors that influence these choices and the way these
small decisions merge to determine the working of the entire economy.
3. Market Analysis
Most of microeconomic theory involves the study of how individual markets function. Markets
refer to the interplay of all potential buyers and sellers involved in production, sale, or purchase
of a particular good or service. To analyze markets, we need to focus on what factors influence
the decisions of buyers and sellers. Innumerable factors could have an impact, but some are
clearly more important than others. Prices receive special attention. Prices are the result of market
transactions, but they also strongly influence the behaviour of buyers and sellers in every market.
The analysis of buyers relies on demand curves; supply curves depict the behaviour of sellers.
3.1 The Demand Curve
The amount of a good that any consumer wishes to purchase depends on many factors: price of
the good, income, age, price of related goods, tastes, etc. A demand curve focuses on the effect of
changes in price, with other factors held constant.
According to the law of demand, ceteris paribus, the lower the price of a good, the larger
the quantity consumers wish to purchase. The negative slope of the demand curve—higher prices
associated with lower quantities—is the graphical representation of the law of demand (Figure
3.1A).
When there is a change in incomes, prices of related goods, or preferences that affects the
quantities demanded at each possible price, it causes a shift in demand. For example, an increase
in income may lead to a rightward shift in demand curve as depicted in Figure 3.1B.
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
Subject Business Economics
Paper No and Title 1, Microeconomic Analysis
Module No and Title 1, Introduction
Module Tag BSE_P1_M1
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
,____________________________________________________________________________________________________
TABLE OF CONTENTS
1. Learning Outcomes
2. Introduction
3. Market Analysis
3.1 Demand Curve
3.2 Supply Curve
3.3 Market Equilibrium
3.4 Elasticity of Demand
4. Consumer Behaviour
4.1 Consumer Preferences
4.2 Budget Constraint
4.3 Consumer Choice
5. Objective of the Firm
5.1 The Production Function
5.2 Costs of Production
6. Pricing and Output Decisions under different market structures
6.1 Perfect Competition
6.2 Monopoly
6.3 Monopolistic Competition
6.4 Oligopoly
6.5 Bilateral Monopoly
7. Pricing Strategies
7.1 Marginal Cost Pricing
7.2 Mark-up Pricing
7.3 Price Discrimination
7.4 Factor Pricing
7.5 Peak-Load Pricing
8. Welfare Economics and Market failure
8.1 Welfare Economics: Basic Ideas
8.2 Market Failure
8.2.1 Externalities
8.2.2 Public Goods
8.2.3 Asymmetric Information
9. Summary
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
, ____________________________________________________________________________________________________
1. Learning Outcomes
After reading this module, you shall be able to
Gain an insight about microeconomics
Understand the various concepts of microeconomic theory including consumer choice,
firm’s objectives, their pricing strategies
Identify the normative issues of welfare in microeconomic theory
Analyze the various causes of market failure
2. Introduction
Microeconomics is the branch of economics based on the economic behaviour of small economic
units: consumers, firms, workers, savers, individual industries, markets and so on. All economic
decisions are ultimately made by individuals, and the totality of these decisions defines the
economic environment. Consumers decide how much of various goods to purchase, workers
decide what jobs to take, and firms decide how many workers to hire and how much output to
produce. Microeconomics encompasses the factors that influence these choices and the way these
small decisions merge to determine the working of the entire economy.
3. Market Analysis
Most of microeconomic theory involves the study of how individual markets function. Markets
refer to the interplay of all potential buyers and sellers involved in production, sale, or purchase
of a particular good or service. To analyze markets, we need to focus on what factors influence
the decisions of buyers and sellers. Innumerable factors could have an impact, but some are
clearly more important than others. Prices receive special attention. Prices are the result of market
transactions, but they also strongly influence the behaviour of buyers and sellers in every market.
The analysis of buyers relies on demand curves; supply curves depict the behaviour of sellers.
3.1 The Demand Curve
The amount of a good that any consumer wishes to purchase depends on many factors: price of
the good, income, age, price of related goods, tastes, etc. A demand curve focuses on the effect of
changes in price, with other factors held constant.
According to the law of demand, ceteris paribus, the lower the price of a good, the larger
the quantity consumers wish to purchase. The negative slope of the demand curve—higher prices
associated with lower quantities—is the graphical representation of the law of demand (Figure
3.1A).
When there is a change in incomes, prices of related goods, or preferences that affects the
quantities demanded at each possible price, it causes a shift in demand. For example, an increase
in income may lead to a rightward shift in demand curve as depicted in Figure 3.1B.
BUSINESS PAPER No. 1: MICROECONOMIC ANALYSIS
ECONOMICS MODULE No. 1: INTRODUCTION
