Micro-economics
LECTURE I
What is micro economics?
Microeconomics is the branch of economics that studies the behavior and decision-
making of individuals, households, and businesses in relation to the use of limited
resources.
Principal of economics:
1. How people make a decision?
I) People face trade of.
II) The cost of somethin which you give up
III) Rotaional people think of margin
IV) People response imcentive
2. How people intract?
I) Trade can make everyone beneficial
II) Markets are good way to organize economic activity
III) Govt can improve market activities
3. How economy work as whole?
I) A country standard of living depending on abbility to produce goods
and services.
II) Price rise when govt print in much money
III) Society face trade off un-employement inflatioN
LECTURE II
MARKET?
A market is a place or system where buyers and sellers come
together to exchange goods, services, or resources — usually in
return for money
Example.
A fruit market where vendors sell fruits.
The stock market where shares are bought and sold.
Market Demand
Market demand refers to the total quantity of a good or service that all consumers in a market are
willing and able to buy at different prices during a specific period of time.
How to Measure Market Demand
Market demand is measured by adding up the individual demands of all consumers
for a product at each price level.
Market Demand (Qᴅ)=Q1+Q2+Q3+...+Qn)
📘 Example:
If three people buy 2, 3, and 5 units of sugar when the price is $10,**
then Market Demand = 2 + 3 + 5 = 10 units at $10.
FACTORS
I) INFERIOR GOODS
II) SUBSITUDES
III) NORMAL GOODS
IV) COMPLEMENTRY GOODS
Why the Slope of Market Demand is Always Negative
The slope of the market demand curve is always negative (downward sloping from
left to right) because there is an inverse relationship between price and quantity
demanded.
This means:As the price of a good increases, the quantity demanded decreases,
and as the price decreases, the quantity demanded increases.
MARKET SUPPLY
Market supply refers to the total quantity of a good or service that all producers (or
firms) in a market are willing and able to offer for sale at different prices during a
specific period of time.
How to Measure Market Supply
Market supply is measured by adding the individual supplies of all producers in the
market at each price level.
Market Supply (Qₛ)= S₁ + S₂ + S₃ + … + Sₙ
FACTORS
Price
No of supplier
Input price
Example
If three farmers supply 50, 70, and 80 kg of wheat at a certain price,
then Market Supply = 50 + 70 + 80 = 200 kg at that price.
How much demand and supply in market?
· Market Demand means how much consumers are willing to buy at different
prices.
👉 Price ↑ → Demand ↓ (inverse relationship)
· Market Supply means how much producers are willing to sell at different prices.
👉 Price ↑ → Supply ↑ (direct relationship)
Equilibrium economy?
Equilibrium in an economy means a state of balance where economic forces such as
demand and supply are equal, and there is no tendency for change.
Example:
If at a price of Rs 50,
Demand = 100 units
Supply = 100 units
Then, the market is in equilibrium — there is no shortage or surplus of goods
THEORY F CONSUMER BEHAVIOUR
LECTURE III
Defination:The theory of consumer behaviour explains how consumers make choices
about what goods and services to buy, how much to buy, and how they spend their
income to get the maximum satisfaction (utility).
Utility:
The satisfaction a person gets from consuming a product is called utility.
More consumption → more utility (up to a limit)
Budget
Consumers have limited income, so they must choose how to spend it wisely.
Cardinal Approach
Definition
The Cardinal Approach (also called the Utility Analysis Approach) is a theory of
consumer behavior which assumes that utility (satisfaction) gained from consuming
goods can be measured numerically — just like numbers (1, 2, 3, etc.).
Assumptions of the Cardinal Approach
Measurable Utility:
Utility can be measured in numbers (utils).
Example: An apple gives 10 utils of satisfaction.
Rational Consumer:
The consumer is rational and aims to maximize total satisfaction from spending
their income.
Constant Marginal Utility of Money:
The utility of money remains constant, even when income or expenditure
changes.
Independent Utilities:
The utility of one good is independent of others.
(Example: satisfaction from tea doesn’t affect satisfaction from coffee.)
Diminishing Marginal Utility:
As a consumer consumes more units of a good, the additional satisfaction from
each extra unit decreases.
Additivity:
Total utility is the sum of the utilities derived from each unit of the goods
consumed.
Total Utility=U1+U2+U3+…+Un\text{Total Utility} = U₁ + U₂ + U₃ + … +
UₙTotal Utility=U1+U2+U3+…+Un
Law of Diminishing Marginal Utility
Definition:The Law of Diminishing Marginal Utility states that as a person consumes
more and more units of a good, the additional satisfaction (utility) obtained from each
extra unit decreases, while total satisfaction increases at a decreasing rate.
Law of equi-marginal utility
The Law of Equi-Marginal Utility states that a consumer gets maximum satisfaction
when the ratio of marginal utility to price is equal for all goods they consume.
Definition:
The Price Effect shows the total change in quantity demanded of a good when its
price changes, keeping other factors constant
Price Effect=Substitution Effect+Income Effect
Definition:
The Substitution Effect occurs when a change in the price of a good makes it
cheaper or costlier compared to substitutes, leading the consumer to substitute one
good for another.
Definition:
The Income Effect occurs when a change in the price of a good changes the
consumer’s real income (purchasing power).