May 30, 2020
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Table of contents :
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
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
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
Review Questions and Exercises
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
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
Further Readings
Part III: Theory of Consumer Demand
Chapter 6: Theory of Consumer Demand: Cardinal Utility Approach
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
Consumers’s Equilibrium: Cardinal Utility Approach
Consumer Equilibrium: A Single Commodity Case
Consumer Equilibrium: The Multiple Commodity
Derivation of Demand Curve
Drawbacks of Cardinal Utility Approach
Review Questions and Exercises
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
Explanatory Note on Giffen Paradox
Review Questions and Exercises
Further Readings
Chapter 8: Application of Indifference Curve Analysis
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
Further Readings
Chapter 9: Revealed Preference Theory
Revealed Preference: Assumptions and Axioms
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
Further Readings
Chapter 10: Consumer Surplus
Marshallian Concept of Consumer Surplus and Its Measurement
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
Further Readings
Part IV: Theory of Production and Analysis of Cost
Chapter 11: Theory of Production: Laws of Returns to a Variable Input
Some Basic Concepts
Meaning of Production
Input and Output
Short Run and Long Run
Production Function
Short-run and Long-run Production Function
Production with One Variable Input: The Short-run Laws of Production
The Laws of Returns to Variable Input (Labour)
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
Further Readings
Chapter 12: Theory of Production: Laws of Returns to Two Variable Inputs
The Isoquant Curve
Derivation of Isoquant Curve
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?
Properties of Cobb–Douglas Production Function
Review Questions and Exercises
Further Readings
Chapter 13: Optimum Combination of Inputs
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
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
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
The Market Structure and Power of Firms
Perfect Competition
Imperfect Competition
A Prelude to the Theory of Firm
Review Questions and Exercises
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
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
Review Questions and Exercises
Further Readings
University Question Papers

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