Micro Economics :A Primer


Author:            Loveleen Gupta & Pradeep Kumar Panda

ISBN   :          978-93-86608-16-1

Pric e:             Rs. 299/-

Year :              2018

Size :              9.5″x8.25″(Crown)


About book

Micro Economics explains how people interact economically, understanding the relationship between people, supply and demand, markets, and efficiency. We will do this by first understanding the nature of the basics concepts of microeconomics, then proceeding to how these apply to specific types of situations. Microeconomic theory aims to model economic activities as the interaction of individual economic agents pursuing their private interests. Microeconomics is the branch of economics that focuses on the choices made by individual decision-making units in the economy – typically consumers and firms, and the impacts those choices have on individual markets. The chapters themselves are written using a “modular” format. In particular, chapters generally consist of three main content sections that break down a particular topic into manageable parts. Each content section contains not only an exposition of the material at hand but also learning objectives, summaries, examples, and problems. Our goal is to encourage active learning by including many examples and many problems of different types. The integrating theme for microeconomics is the marginal decision rule, a simple approach to choices that maximize the value of some objective. The well-known theoretical result is presented methodically and consistently as it is in this text.
















1.1 Economics


1.2 Micro Economics


1.3 Scarcity, Choice and Cost




1.3.1 Scarcity and Choice


1.3.2 Opportunity Cost


1.4 Production Possibility Curve


1.4.1 Definition


1.4.2 Assumptions


1.4.3 Production Possibility Schedule


1.4.4 Attainable and Unattainable Combinations of Output on PPC


1.4.5 Utilization of Resources


1.4.6 Slope of Production Possibility Curve


1.4.7 Scarcity, Choice and Opportunity Cost


1.4.8 Shift in PPC


1.4.9 Production Possibility Curve and the Central problems


1.5 Circular Flow of Income and Expenditure


1.5.1 Market Economy
1.5.2 Invisible Hand
1.5.3 Planned Economy
1.5.4 Mixed Economy




2.1 Introduction


2.2 Want or Desire and Demand


2.3 Demand Schedule and Demand Curve


2.3.1 Individual Demand Schedule Graphical Representation of Demand Schedule Market Demand Schedule


2.4 Determinants of Demand


2.5 How Do Different Determinants Affect Demand?




2.6 Law of Demand


2.7 Why Demand Curve Slopes Downward?


2.8 Exception to Law of Demand


2.9 Change in Quantity Demanded or Movement Along the Demand Curve


2.10 Change in Demand or Shift in the Demand Curve


2.11 Difference between Extension of Demand and Increase in Demand


2.12 Difference between Contraction of Demand and Decrease in Demand


2.13 Movement along the Demand Curve versus Shift in Demand Curve


2.14 Supply


2.14.1 Supply and Stock


2.15 Supply Schedule and Supply Curve


2.15.1 Individual’s Supply Schedule


2.16 Determinants of Supply


2.17 How Do Different Determinants Affect Supply?


2.18 Law of Supply


2.19 Exception to the Law of Supply


2.20 Change in Quantity Supplied or Movement along the Supply Curve


2.20.1 Extension of Supply


2.20.2 Contraction of Supply


2.20.3 Extension versus Contraction of Supply


2.21 Changes in Supply or Shift in Supply Curve


2.21.1 Decrease in Supply


2.21.2 Increase in Supply versus Decrease in Supply


2.22 Difference between Extension of Supply and Increase in Supply


2.23 Difference between Contraction of Supply and Decrease in Supply


2.24 Movement along Supply Curve versus Shift in Supply Curve


2.25 Determination of Price and Market Equilibrium


2.26 Change in equilibrium


2.26.1 Effect of Change in Demand on Equilibrium


2.26.3 Simultaneous Change in Demand and Supply


3.1 Introduction  
3.2 Elasticity of Demand  
3.3 Price Elasticity of Demand  
3.5 Some Theorems on Elasticity of Demand  
3.6 The Slope of a Demand Curve is Not the Measure of Elasticity of Demand  
3.7 Income Elasticity of Demand  
3.8 Cross Elasticity of Demand  
3.9 Importance of Elasticity of Demand  


  1. 10 Determinants of Elasticity of Supply




  4.1 Introduction  
  4.2 Maximum Price Legislation or Price Ceiling  
    4.2.1 Measures to tackle Shortage or Excess Demand:  
    4.2.2 Effects of Price Ceiling  
    4.2.3 Rent Control Effects of Rent Control  
  4.3 Minimum Price Legislation or Price Flooring  
    4.3.1 Unbinding Price Flooring  
    4.3.2 Binding Price Flooring:  
    4.3.3 Effects of Price Flooring  
    4.3.4 Applications of Price Flooring:  
  4.4 Tax    
    4.4.1 How Taxes on Sellers Affect the Market  
    4.4.2 How Taxes on Buyers Affect the Market:  
  4.5 Elasticity and Tax Incidence  
    4.5.1 How Elasticity Affects Incidence of Taxation  
  4.6 Application of the Theory of Demand and Supply to Agricultural Sector  
    4.6.1 Fluctuations in Prices and Income of the Farmers  
    4.6.2 Agricultural Stabilization Programs  
  5.1 Introduction  
  5.2 Total Utility and Marginal Utility  
  5.3 Relation between Total Utility and Marginal Utility  
    5.3.1 Graphical relationship between TU and MU Curves  
  5.4 Cardinal Utility Theory (or Marginal Utility Theory)  
    5.4.1 Law of Cardinal Utility Analysis  
    5.4.2 Law of Diminishing Marginal Utility (or Gossen’s First Law)  
    5.4.3 Law of Equi-Marginal Utility or Consumer Equilibrium  
  6.1 Introduction  
  6.2 Assumptions of the theory  
  6.3 Indifference Curve  
    6.3.1 Definition  
    6.3.2 Indifference Schedule  
    6.3.3 Graphical Representation of Indifference Schedule-Indifference Curve  
    6.3.4 Indifference Map  
    6.3.5 Properties of Indifference Curve  
  6.4 Marginal Rate of Substitution  
    6.4.1 Decreasing Marginal Rate of Substitution  
    6.4.2 Constant Marginal Rate of Substitution  
    6.4.3 Increasing Marginal Rate of Substitution  

6.5 Some Exceptional Shapes of an Indifference Curve  
  6.5.1 Perfect Substitutes(Straight Line Indifference Curve)  
  6.5.2 Perfect Complements (L-Shaped or Right Angled Indifference Curve)  
  6.5.3 Bad Goods  
  6.5.4 Neutral Goods  
  6.5.5 U-shaped Indifference Curve (Goods with Negative utility)  
6.6 Budget Line  
  6.6.1 Budget Space  
  6.6.2 Slope of the budget line  
  6.6.3 Shift in Budget Line  
6.7 Consumer Equilibrium  
  6.7.1 Consumer’s Equilibrium- Corner Solution  
6.8 Income Effect: Income Consumption Curve (ICC)  
6.9 Engel’s Curve  
  6.9.1 Engel’s Curve for an Inferior Good  
6.10 Price Effect: Price Consumption Curve  
  6.10.1 Price Consumption Curve in Case of Giffin Goods  
  6.10.2 Horizontal Shaped Price Consumption Curve  
6.11 Derivation of Demand Curve through Price Consumption Curve  
  6.11.1 Different shapes of Demand Curves  
  6.11.2 Demand curve in Case of Giffin Goods  
6.12 Difference between Demand Curve and Price Consumption Curve  
6.13 Price Effect  
  6.13.1 Substitution Effect  
  6.13.2 Income Effect  
6.14 Separation of Price Effect into Substitution Effect and Income Effect  
  6.14.1 Hicksian Approach  
  6.14.2 Slutsky’s Approach:  
7.1 Introduction  
7.2 Production Function  
7.3 Factor of production  
7.4 Time Period  
  7.4.1 Short-run versus Long-run Production Function  
7.5 Concept of product  
  7.5.1 Relationship between TP, AP and MP of Labor  
7.6 Law of production  
  7.6.1 Return to a Factor: Law of Variable Proportions or Diminishing Returns:  
7.6.2 Assumptions  
7.6.3 Three stages of production:  
7.6.4 Stage of Rational Decision  
7.7 Causes behind Return to a Factor  
7.8 Production Function with Two Variable Inputs  



7.9 Isoquant


7.9.1 Assumption of the Isoquant Analysis


7.9.2 Isoquant Schedule


7.9.3 Isoquant Map


7.9.4 Slope of an Isoquant Curve: Marginal Rate of Technical Substitution


7.9.5 Properties of an Isoquant Curve


7.10 Iso-Cost Line


7.10.1 Isocost Schedule


7.10.2 Equation of an Isocost Line


7.10.3 Shift in Isocost Line


7.11 Producer’s Equilibrium: Least Cost Combination of Factors


7.12 Principle of Factor Substitution


7.13 Return to the Scale


7.13.1 Three situations of Return to the Scale


7.14 Sources of Increasing Return to Scale or Economies of Scale


7.14.1 Internal Economies


7.14.2 External Economies


7.15 Sources of Decreasing Returns to Scale or Diseconomies of scale  
7.16 Sources of Constant Return to Scale or Balance between Economies and Diseconomies  
8.   THEORY OF COSTS 164-182
8.1 Introduction  
8.2 Cost Function  
  8.2.1 Long-run Cost Function  
  8.2.2 Short-run Cost Function  


8.3 Concept of Cost


8.4 Short-run Cost Curves


8.5 Short-run Total Cost (TC)


8.5.1 Total Factor Cost


8.5.2 Total Variable Cost (TVC)


8.5.3 Total Cost (TC)


8.6 Short-run Average Total Cost (AC)


8.6.1 Average Fixed Cost (AFC)


8.6.2 Average Variable Cost (AVC)


8.6.3 Average Total Cost (ATC)


8.7 Short-run Marginal Cost (SMC)


8.8 Relationship between Average cost and Marginal Cost


8.9 Relationship between MC and AVC


8.10 Relationship between Short-run Cost Curves


8.11 Relationship between Cost and Productivity


8.12 Theory of Long-run Cost



8.12.1 Long-run Total Cost and Expansion Path


8.13 Long-run Average Cost
8.13.1 The Relationship between Short-run and Long-run Cost
8.13.2 Derivation of Long-run Average Cost
8.13.3 Reason behind U-shape of the Long-run Average cost curve
8.13.4 Long-run Average Cost Curve in Case of Constant Returns to Scale
8.13.5 Optimum Size of a Firm and Minimum Efficient Scale
8.13.6 Shift in Cost Curves


8.14 Long-run Marginal Cost


8.15 Relationship between LAC and LMC Curve


  9.1 Introduction  
  9.2 Total Revenue (TR)  
  9.3 Average Revenue (AR)  
  9.4 Marginal Revenue (MR)  
  9.5 Average Revenue and Marginal Revenue under Perfect Competition  
  9.6 Average Revenue and Marginal Revenue under Imperfect Competition  
  9.7 Relationship between Average Revenue and Marginal Revenue Curves  
  9.7.1 AR and MR Curves are Horizontal Straight Line Parallel to X- axis  
  9.7.2 AR and MR Curves are Downward Sloping Straight Line  
  9.7.3 When AR and MR Curves are Both Convex to the Origin  
  9.7.4 When AR and MR Curves are Both Concave to the Origin  
  9.7.5 Average Revenue Marginal Revenue and price Elasticity of Demand  
  9.8 Total Revenue MR, AR Curves and Price Elasticity of Demand  
  10.1 Introduction  
  10.2 Perfect Competition  
  10.2.1 Pure Competition versus Perfect Competition  
  10.3 The Firm’s Demand Curve under Perfect Competition  
  10.4 Short-run Equilibrium  
  10.4.1 Total Revenue and Total Cost Approach  
  10.4.2 Marginal Cost Marginal Revenue Approach  
  10.7 The Short-run Competitive Firm’s Supply Curve  
  10.7.1 The Short-run Industry Supply Curve  
  10.8 Long-run Equilibrium in a Perfectly Competitive Market  
  10.9 Long-run Industry Supply Curve  
  11.1 The Allocative Efficiency of Perfect Competition  
  11.2 Consumer Surplus  


11.3 Producer Surplus


11.3.1 Any Higher Price Raises a Producer Surplus


11.4 Producer Surplus and Consumer Surplus Together


11.5 The Allocative Efficiency of Perfect Competition


12. MONOPOLY 214-228
  12.1 Introduction  
  12.2 Monopoly  
  12.3 Features of Monopoly  
  12.4 Why does Monopoly Arise?  
  12.5 Short Run Equilibrium  
  12.7 No Unique Supply Curve for Monopoly  
  12.8 Multi Plant Monopoly  
  12.9 The Allocative Inefficiency of Monopoly  
  12.10 Long Run Monopoly Equilibrium  
  12.11 Price Discrimination  
    12.11.1 Types of Price Discrimination  
    12.11.2 Degree of Price Discrimination  
  12.12 Dumping- Price Discrimination  
  12.13 Comparison of Perfect Competition with Monopoly  
  13.1 Introduction  
  13.2 Monopolistic Competition  
    13.2.1 Assumptions  
  13.3 Demand Curve Faced by a Firm under Monopolistic Competition  
  13.4 Short Run Equilibrium  
  13.5 Long Run Equilibrium  
  13.6 Excess Capacity  
  13.7 Perfect Competitive Vs Monopolistic Competition  
14. OLIGOPOLY 236-242
  14.1 Oligopoly  
  14.2 Features of Oligopoly  
  14.3 Demand Curve Under Oligopoly is Indeterminate  
  14.4 Types of Oligopoly  
  14.5 Why Few Large Firms Dominate an Industry?  
    14.5.1 Natural Factors  
    14.5.2 Natural Causes of Bigness  
  14.6 The Basic Dilemma of Oligopoly  
    14.6.1 Nash Equilibrium  
  14.7 Oligopoly : As a Game  
  14.8 Dynamics of Oligopolistic industries  
  15.1Changes in Supply  
  15.2 Effect of Changes in Input Prices  
  15.3 The Effect of Taxes on Price and Output  
  15.4 Effect of Changes in Technology  
  15.5 Changes in Demand  

  15.6 Alternative Maximizing Theories  
  15.7 Non Maximizing Theories  
  15.8 OPEC: A Case Study of a Cartel  
  16.1 Evolution of Government  
  16.2 Functions of Government  
  16.3 Role of Government  
  16.4 Efficiency  
  16.5 Market Failure  
  16.6 Types of Good  
  16.7 Cases of Market Failure  
  17.1 Theory of Distribution  
  17.2 Demand for Factors  
  17.3 Concepts of Productivity  
  17.4 Marginal Productivity Theory  
    17.4.1 Assumptions  
  17.5 Factor Pricing in Perfectly Competitive Market  
    17.5.1 Assumptions  
  17.6 Elasticity and Factor Demand  
  16.7 Economic Rent  
  18.1 Introduction  
  18.2 The Gains from Trade  
  18.3 The Classical Theory of International Trade  
  18.4 Trade based on Absolute Advantage : Adam Smith  
    18.4.1 Assumptions  
    18.4.2 Absolute Advantage Theory  
  18.5 Trade Based on Comparative Advantage  
  18.6 Labor Theory of Value  
  18.7 Trade Barriers  
    18.7.1 Types : There are Various Types of Tariffs:  
    18.7.2 Definition:  
    18.7.3 Types :  
    18.7.4 Partial Equilibrium Analysis of a tariff  
  18.8 Effects of a Tariff on Consumer and Producer Surplus and Cost and Benefit Analysis of a tariff
  18.9 Non-Tariff Barriers to Trade  
  18.10 World Trade Organisation  
    18.10.1 History:  
    18.10.2 From Geneva to Tokyo  


18.10.3 Uruguay Round


18.10.4 The Agreement Establishing the WTO


18.10.5 Functions of WTO


About Authors

Ms. Loveleen Gupta is an Assistant Professor at Bharati College, Delhi University. She has rich teaching experience in various subjects. Her core areas of research are Indian Economy, Development Economics and International Economics. She has written various modules in Micro Economics for UGC E-pathsala. She has co-authored four books viz. History of Economic Thought (2016), Micro Economics I (2015), Micro Economics II (2015) and International Trade (2014).

Mr. Pradeep Kumar Panda is an Economist. He is awarded with Best Young Researcher Award 2016 for outstanding contribution to research and publication in the field of Economics by GRABS Educational Charitable Trust, Chennai. He has published twelvebooks viz. Women Empowerment (2017), Micro Economics (2017), Macro Economics (2017), Odisha (2016), History of Economic Thought (2016), Micro Economics I (2015), Micro Economics II (2015), International Trade (2014), On the Predictability of Mutual Funds Return (2012), Sri Krishna Speaks (2012), Sri Sathya Sai Speaks (2012), and Sach is Life (2012). Over 30 research papers in the areas of Women Empowerment, Macro-Monetary Economics, Financial Economics and International Economics are published in various national and international journals. He is columnist Orissa Post News paper and published over 50 articles in the areas of Gender, Economy, Finance and Entrepreneurship Development. He is resource person of several national and international journals. For more details visit



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