Introduction: The Logic of the Market
Microeconomics furnishes the fundamental logic of the market environment, equipping students with the analytical tools needed for robust business strategy, competitive analysis, and informed decision-making regarding pricing and production. The course follows a logical "micro-to-meso" progression. It begins by examining the decision-making process of the individual consumer, then shifts to the operational and cost considerations of the firm, and finally analyzes the interaction between these two agents across a spectrum of different market structures.
Module 1: Introduction to Economics and Market Forces
1.1 The Economic Problem
This section introduces the fundamental concepts that define the field of economics.
- Scarcity and Choice: Explores the core issue of economics: scarcity of resources versus unlimited wants, which necessitates choice and gives rise to the concept of opportunity cost.
- Basic Economic Problems: Addresses the three central questions any economy must answer: What to produce? How to produce? and For whom to produce?
- Economic Systems: Compares and contrasts different ways societies organize their economies, including the Free Market (Capitalist), Command (Socialist), and Mixed economic systems.
1.2 Demand, Supply, and Market Equilibrium
This part explains the core market forces that determine the prices and quantities of goods and services.
- Demand and Supply: Introduces the Law of Demand and the Law of Supply, and demonstrates how their interaction determines the equilibrium price and quantity in a market.
- Elasticity of Demand: A crucial concept for business pricing strategy, this topic covers Price Elasticity, Income Elasticity, and Cross Elasticity of Demand, including their calculation and interpretation.
Module 2: Theory of Consumer Behavior
This section delves into the logic behind consumer choices and the foundations of demand, explaining how consumers allocate their income to maximize satisfaction.
- Utility Analysis: Covers the Cardinal utility approach, explaining concepts like Total and Marginal Utility and the Law of Diminishing Marginal Utility.
- Indifference Curve Analysis: Introduces the Ordinal utility approach, using indifference curves and budget lines to illustrate consumer preferences and determine consumer equilibrium.
Module 3: Theory of Production and Cost
This part shifts focus to the firm, examining the relationship between inputs and outputs, and the nature of production costs, which are critical for supply decisions.
- Theory of Production: Introduces the concept of the production function and analyzes short-run production with the Law of Variable Proportions (or Law of Diminishing Returns).
- Theory of Cost: Defines and analyzes various cost concepts, including short-run and long-run costs, fixed and variable costs, and the critically important average and marginal costs.
Module 4: Market Structures
The final section analyzes how firms behave and how prices are determined in different competitive environments, providing a framework for competitive strategy.
- Perfect Competition: Analyzes how price and output are determined for the firm and industry in a market with many firms and a homogeneous product.
- Monopoly: Explains how a single seller with no close substitutes determines price and output to maximize profit.
- Monopolistic Competition: Discusses price and output determination in a market with many firms selling differentiated products.
- Oligopoly: Introduces the key features of a market dominated by a few large firms, such as interdependence and strategic behavior.