Microeconomics I (For University of Delhi)

Cover
Syllabus
Contents
Preface
About the Author
Part I: Introduction
	Chapter 1: Introduction to Microeconomics
		What is Economics?
			Economics Is a Social Science
			Why Economizing Behaviour?
			Two Major Branches of Economics
		What is Microeconomics?
		Is Microeconomics a Positive or a Normative Science?
			Microeconomics As a Positive Science
			Microeconomics As a Normative Science
		Methodology of Positive Economics: Model Building and Theorization
		The Uses and Limitations of Microeconomic Theories
			The Uses of Microeconomic Theories
			Limitations of Microeconomic Theories
			Limitations Do Not Matter Much
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 2: The Economy: Its Basic Problems and Working System
		What is an Economy?
			Economic Activities Are Interrelated and Interdependent
			The Economic System Works Automatically
		How an Economy Works?
			The Circular Flow Model of a Simple Economy
		The Basic Problems of an Economy
			Problems in Maximizing Production and Optimizing Distribution
		How Market Mechanism Solves the Basic Economic Problems?
		Drawbacks of the Free Enterprise System
		The Government and the Economy
			The Mixed Economy System Is the Order of the Day
		The Production Possibility Frontier
			Some Implications of PPF
				Implications of Points Away from PFF
				The Opportunity Cost
				Increasing Opportunity Cost and Concavity of PPF
				Why Does Opportunity Cost Increase?
			Shift in PPF
		Review Questions and Exercises
		Endnotes
		Further Readings
Part II: Market Mechanism: How Markets Work
	Chapter 3: The Market Forces: Demand and Supply
		The Concept of Market
		The Demand Side of the Market
			Meaning of Demand
			The Law of Demand
			The Demand Schedule
			The Demand Curve
			The Factors Behind the Law of Demand
			Exceptions to the Law of Demand
			The Market Demand
			Determinants of Market Demand
			Demand Function
			Shift in Demand Curve
		The Supply Side of the Market
			Market Supply
			The Law of Supply
			The Supply Schedule and Supply Curve
			Shift in the Supply Curve
			Supply Function
		The Market Equilibrium: the Equilibrium of Demand and Supply
			Determination of Price in a Free Market
			The Concept of Market Equilibrium
			Determination of Market Price
			Market Mechanism: How Market Brings About Balance
			Graphical Illustration of Price Determination
			Price Determination by Demand and Supply Functions
		Shift in Demand and Supply Curves and Market Equilibrium
			Shift in Demand Curve
			Shift in Supply Curve
			Parallel Shift in Demand and Supply Curves
		Stability of Market Equilibrium
			Market Equilibrium Under Dynamic Conditions
		Conclusion
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 4: Elasticity of Demand and Supply
		The Elasticity of Demand
		Price Elasticity of Demand
			The Arc and Point Elasticity
			Measuring Arc Elasticity
			Measuring Point Elasticity
			Price Elasticity Varies Along the Demand Curve
			The Slope of Demand Curve and Price Elasticity
		Determinants of Price Elasticity of Demand
		Measuring Price Elasticity from a Demand Function
			Measuring Price Elasticity from a Linear Demand Function
			Price Elasticity from a Non-linear Demand Function
		Price Elasticity and Sales Revenue
			Price Elasticity and Marginal Revenue
			Relation Between MR and AR
			Price Elasticity and Total Revenue
		Price Elasticity and Consumption Expenditure
		Other Elasticities of Demand
			Cross-Elasticity of Demand
			Income Elasticity of Demand
		Application of Demand Elasticity
		Price Elasticity of Supply
			Definition and Measurement
			Determinants of the Price Elasticity of Supply
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 5: Application of Market Laws and Elasticities
		Excise Tax: Its Effects and Incidence
			Lump-Sum and Ad Valorem Excise Tax
			The Effects of Excise Tax on Production and Price
			Who Bears the Tax Burden?
		Production Subsidy and Its Effects
			The Effect of Production Subsidy
			Who Benefits from Production Subsidy?
		Import Tariffs and Export Subsidies
			Import Tariffs
			Export Subsidy
		Review Questions
		Endnotes
		Further Readings
Part III: Theory of Consumer Demand
	Chapter 6: Theory of Consumer Demand: Cardinal Utility Approach
		Introduction
		Cardinal Utility Approach to Demand Analysis
			The Concept of Cardinal Utility and Its Measurement
			The Total and Marginal Utility
		The Law of Diminishing Marginal Utility
			Numerical Example
			Graphical Illustration
			Assumptions
		Consumers’s Equilibrium: Cardinal Utility Approach
			Assumptions
			Consumer Equilibrium: A Single Commodity Case
			Consumer Equilibrium: The Multiple Commodity
		Derivation of Demand Curve
		Drawbacks of Cardinal Utility Approach
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 7: Theory of Consumer Demand: Ordinal Utility Approach
		Ordinal Utility Concept and Its Assumptions
			Assumptions of the Ordinal Utility Theory
		Indifference Curve
			Indifference Map
			The Concept of Marginal Rate of Substitution (MRS)
			Postulates of Diminishing MRS
			Why the MRS Declines
		Properties of Indifference Curves
			Indifference Curves Have a Negative Slope
			Indifference Curves Are Convex with Reference to the Origin
			Indifference Curves Neither Intersect Nor Are Tangential to One Another
			Higher Indifference Curves Represent a Higher level of Satisfaction than the Lower Ones
		Other Types of Indifference Curves
			Perfect Substitutes
			Complementary goods
		Goods, Cue and Neuters
			What Are the Cue and the Neuters?
			Indifference Maps for Goods, Cue and Neuters
		Budgetary Constraint and the Budget Line
			What Causes Shifts in the Budget Line
			Slope of the Budget Line
		Consumer Equilibrium: The Ordinal Utility Approach
			Corner Solution: The Extreme Choice
			Composite Goods Case
		Changes in Income and Consumer Behaviour
			Income Effects on Consumer Behaviour Towards Normal Goods
			Inferior Goods
			Income and Consumption: The Engel Curve5
			Engel and Demand Curves
			Engel Curve and Income Elasticity of Demand
		Changes in Prices and Consumer Behaviour
			Changes in Price and Consumer Behaviour: Case of Normal Goods
			Derivation of Consumer Demand Curve
			Graphical Derivation of Demand Curve
		Income and Substitution Effects of Pricechange: Normal Goods Case
			Hicksian Approach
			Slutskian Approach
			Comparison of the Hicksian and Slutskian Methods
			Measurability of Income and Substitution Effects
		Income and Substitution Effects: Inferior Goods
			Effect of Rise in Money Income
			Income and Substitution Effects of Price Change: Case of Inferior Goods
			Giffen Paradox
		Comparison of Cardinal and Ordinal Utility Approaches
			Similarity Between the Two Approaches
			Superiority of the Indifference Curve Approach
		Drawbacks of Indifference Curve Approach
		Appendix
			Explanatory Note on Giffen Paradox
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 8: Application of Indifference Curve Analysis
		Introduction
		Measuring Welfare Effects of Income and Excise Taxes
			Choice Between Taxes
		Measuring Effects of Excise and Income Subsidies
			Measuring the Financial Cost of Excise Subsidy
			Measuring the Financial Cost of Lump-Sum Income Subsidy
			Making Choice of Policy
		Measuring Welfare Effect of Commodity Exchange Between Individuals
		Derivation of Labour Supply Curve
			Income–Leisure Choice
			Wage–Labour Offer Curve and Labour Supply Curve
		Evaluating Rationing of Consumer Good
			Rationing of One Commodity
			Rationing of More Commodities
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 9: Revealed Preference Theory
		Introduction
		Revealed Preference: Assumptions and Axioms
			Assumptions
			Revealed Preference Axiom
		Decomposition of Substitution and Income Effects and Derivation of Demand Curve
		Derivation of Indifference Curve
		Appraisal of Revealed Preference Theory
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 10: Consumer Surplus
		Introduction
		Marshallian Concept of Consumer Surplus and Its Measurement
			Assumptions
			Critical Appraisal
		Hicksian Method of Measuring Consumer Surplus
			Measuring Consumer Surplus under Constant MU of Money
			Measuring Consumer Surplus under Variable MU of Money
		Extentions of Hicksian Approach to Consumer Surplus
			Hicks’ Four Concepts of Consumer Surplus
		Application of Consumer Surplus
			The Deadweight Loss of Commodity Taxation
			Deadweight Loss from Sales Tax: Tax on Consumers
			Measuring Gains of Subsidy
			Deadweight Loss of Price Control
			Deadweight Loss of Trade Barriers
		Review Questions
		Endnotes
		Further Readings
Part IV: Theory of Production and Analysis of Cost
	Chapter 11: Theory of Production: Laws of Returns to a Variable Input
		Introduction
		Some Basic Concepts
			Meaning of Production
			Input and Output
			Short Run and Long Run
		Production Function
			Short-run and Long-run Production Function
			Assumptions
		Production with One Variable Input: The Short-run Laws of Production
			The Laws of Returns to Variable Input (Labour)
			Assumptions
			Marginal Productivity of Labour
			Average Productivity of Labour
			The Three Stages in the Law of Diminishing Returns
			Factors Behind the Laws of Returns
			Applicability of the Law of Diminishing Returns
		Graphical Derivation of Marginal and Average Product Curves
			Derivation of Marginal Product Curve (MPL)
			Derivation of Average Product Curve (APL)
		The Three Stages of Production
		The Three Stages of Production and Production Decisions
			What About Stage II?
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 12: Theory of Production: Laws of Returns to Two Variable Inputs
		Introduction
		The Isoquant Curve
		Derivation of Isoquant Curve
			Assumptions
		Properties of Isoquant Curves
			Isoquants Have a Negative Slope
			Isoquants Are Convex to the Origin
			Isoquants Do Not Intersect or Are Tangent to Each Other
			Upper Isoquants Represent a Higher Level of Output
		Marginal Rate of Technical Substitution (MRTS)
		Isoquant Map and Economic Region of Production
			Isoquant Map
			Economic Region of Production
		Other Forms of Isoquants
			Perfect Substitutes and Linear Isoquants
			The Fixed Factor Technology and L-shaped lsoquant
			The Kinked or Linear Programming Isoquants
		Elasticity of Technical Substitution
		The Laws of Returns to Scale
			Three Laws of Return to Scale
			The Law of Increasing Returns to Scale
			The Law of Constant Returns to Scale
			The Law of Decreasing Returns to Scale
		Production Function and Returns to Scale
			Cobb–Douglas Production Function7 and Returns to Scale
		Laws of Variable Proportions and Returns to Scale Compared
			Graphic Comparison
			Are the Laws of Returns Compatible?
			Can the Two Kinds of Laws Operate Simultaneously?
		Appendix
			Properties of Cobb–Douglas Production Function
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 13: Optimum Combination of Inputs
		Introduction
		Derivation of Isocost
		The Least Cost Criteria of Optimum Input Combination
			Criterion in Value Terms
		Choice of Optimal Expansion Path
		Effects of Change in Input Prices
			Change in Input Prices and Isocosts
			Change in Input Prices and Expansion Path
			Change in Relative Price of Inputs
		Substitution and Resource Effects of Change in Input Prices
		Review Questions and Exercises
		Further Readings
	Chapter 14: Theory of Cost
		Introduction
		Cost Concepts
			Accounting Cost Concepts
			Analytical Cost Concepts
			Policy Related Cost Concepts: Private and Social Costs
		Theory of Cost: An Overview
		Theory of Short-Run Cost
			Short-run Cost Measures
			The Short-run Cost–Output Relationship
		Short-run Cost Function and Cost Curves
			Numerical Example
			Derivation of Behavioural Cost Equations
		Long-run Cost–Output Relationship
			Derivation of Total Long-run Cost (LTC) Curve
			Derivation of Long-run Average Cost (LAC) curve
			Derivation of Long-run Marginal Cost (LMC) Curve
			Optimum Size of the Firm in the Long Run
		Economies and Diseconomies of Scale: Factors Behind Cost Behaviour
			The Economies of Scale: Factors Causing Decrease in LAC
			Diseconomies of Scale: Why LAC Increases
		Modern Approach to the Theory of Cost
			Modern Approach to Short-run Cost Behaviour
			What Happens to the Average Variable Cost (AVC)?
			The SAVC and SMC Curves
			The Short-run Average Cost (SAC) Curves
			Modern Approach to Long-run Cost Behaviour: The L-shaped Scale Curve
			Derivation of the LAC Curve
		Review Questions and Exercises
		Endnotes
		Further Readings
Part V: Theory of Firm: Determination of Priceand Output
	Chapter 15: The Objectives of Business Firms and Their Market Powers
		The Objectives of Business Firms
			Profit Maximization as Business Objective
			Profit-Maximization Conditions
			Numerical Illustration
			Graphical Instruction
			Controversy on Profit-Maximization Objective
			Alternative Objectives of Business Firms
			Conclusion
		The Market Structure and Power of Firms
			Perfect Competition
			Imperfect Competition
			Monopoly
		A Prelude to the Theory of Firm
		Review Questions and Exercises
		Endnotes
		Further Readings
	Chapter 16: Price and Output Determination under Perfect Competition
		Characteristics of Perfect Competition
			Perfect versus Pure Competition
		Role of a Firm in a Perfectly Competitive Market
			What Are the Firm’s Options
		Short-run Equilibrium of the Firm
			Assumptions
			Does a Firm Always Make Profit in the Short-run?
			Shut-down or Close-down Point
		Derivation of Supply Curve: A Digression
			Derivation of Firm’s Supply Curve
			Derivation of Industry Supply Curve
		Short-Run Equilibrium of Industry and Firm
			Link Between Short-run Equilibrium of the Industry and the Firm
		Long-run Equilibrium of the Firm and Industry
			Equilibrium of the Firm in the Long-run
			Equilibrium of Industry
		Long-run Supply Curve of a Competitive Industry
			Constant Cost Industry
			Increasing Cost Industry
			Decreasing Cost Industry
			Whether Decreasing Cost
		Conclusion
		Review Questions and Exercises
		Endnotes
		Further Readings
University Question Papers