Micro Economics Book 3 A2 Level Notes

570.00

Book Code : 159
Number of Pages : 225
Author : Imran Latif
Language : English
Publishers : Read and Write Publications

 

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TABLE OF CONTENTS
UNIT 1 THEORY OF CONSUMER BEHAVIOUR………………………………………………………………………………………….. 20
CARDINAL APPROACH …………………………………………………………………………………………………………………………………. 20
Law of Diminishing Marginal Utility: ……………………………………………………………………………………………………. 21
Law of Equi-marginal Utility ……………………………………………………………………………………………………………….. 24
ORDINAL APPROACH: …………………………………………………………………………………………………………………………………. 28
Budget line ……………………………………………………………………………………………………………………………………….. 28
Indifference Curves ……………………………………………………………………………………………………………………………. 34
Consumer Equilibrium through the Ordinal Approach:……………………………………………………………………………. 35
PAST PAPER QUESTIONS ………………………………………………………………………………………………………………………… 42
UNIT 2 PRODUCTION AND COST ………………………………………………………………………………………………………….. 46
THE LAW OF DIMINISHING RETURNS (LAW OF VARIABLE PROPORTIONS): ………………………………………………………………………. 47
LEAST-COST INPUTS COMBINATION IN THE LONG RUN: …………………………………………………………………………………………… 52
ISOCOST AND ISOQUANT APPROACH:……………………………………………………………………………………………………………….. 52
SCALE OF PRODUCTION AND RETURNS TO SCALE: ………………………………………………………………………………………………….. 54
SHORT-RUN COSTS: ……………………………………………………………………………………………………………………………………. 55
RELATIONSHIP BETWEEN SHORT-RUN COSTS & LAW OF DIMINISHING RETURNS ……………………………………………………………… 64
ECONOMIES AND DISECONOMIES OF SCALE: ……………………………………………………………………………………………………….. 67
SMALL FIRMS: ………………………………………………………………………………………………………………………………………….. 73
PAST PAPER QUESTIONS ………………………………………………………………………………………………………………………… 75
UNIT 3 RULES OF FIRM’S BEHAVIOUR …………………………………………………………………………………………………… 78
1. TRADITIONAL ECONOMIC THEORY OF PROFIT MAXIMIZATION ……………………………………………………………………………. 78
2 BUSINESS CONTINUITY RULES …………………………………………………………………………………………………………………. 79
3 TYPES OF PROFITS ………………………………………………………………………………………………………………………………. 80
PAST PAPER QUESTIONS ……………………………………………………………………………………………………………………………… 82
UNIT 4 PERFECT COMPETITION ……………………………………………………………………………………………………………. 84
PRICE AND OUTPUT DETERMINATION IN SHORT RUN …………………………………………………………………………………………….. 85
SHORT-RUN PRICE AND OUTPUT DETERMINATION: ……………………………………………………………………………………………….. 87
Types and Determination of Profit ……………………………………………………………………………………………………….. 89
The Shutdown case of a perfectly competitive firm ………………………………………………………………………………… 91
Derivation of the supply curve of a perfectly competitive industry in the short run …………………………………….. 93
PRICE AND OUTPUT DETERMINATION IN LONG RUN ……………………………………………………………………………………………… 93
IS PERFECT COMPETITION A REALISTIC MODEL? …………………………………………………………………………………………………… 94
UNIT 5 MONOPOLY ……………………………………………………………………………………………………………………………. 96
PRICE AND OUTPUT DETERMINATION IN SHORT RUN …………………………………………………………………………………………….. 98
Types of profits: ………………………………………………………………………………………………………………………………… 98
Types of losses ………………………………………………………………………………………………………………………………… 100
PRICE AND OUTPUT DETERMINATION IN LONG RUN ……………………………………………………………………………………………. 103
BARRIERS TO ENTRY …………………………………………………………………………………………………………………………………. 103
UNIT 6 MONOPOLISTIC COMPETITION ………………………………………………………………………………………………… 106
PRICE AND OUTPUT DETERMINATION IN SHORT RUN …………………………………………………………………………………………… 108
PRICE AND OUTPUT DETERMINATION IN LONG RUN ……………………………………………………………………………………………. 108
UNIT 7 OLIGOPOLY …………………………………………………………………………………………………………………………… 112
PRICE AND OUTPUT DETERMINATION IN OLIGOPOLY …………………………………………………………………………………………… 112
Kinked Demand Curve ………………………………………………………………………………………………………………………. 113
Price Leadership ………………………………………………………………………………………………………………………………. 115
Cartel: ……………………………………………………………………………………………………………………………………………. 116
Game Theory ………………………………………………………………………………………………………………………………….. 120
MERGER AND INTEGRATION (MCQS ONLY) ……………………………………………………………………………………………………… 122
UNIT 8 COMPARISON OF MARKET STRUCTURES …………………………………………………………………………………… 126
UNIT 9 OBJECTIVES, DISCRIMINATION,& CONTESTABILITY …………………………………………………………………….. 130
OBJECTIVES OF FIRMS ……………………………………………………………………………………………………………………………….. 130
PRICE DISCRIMINATION ……………………………………………………………………………………………………………………………… 134
CONTESTABLE MARKETS …………………………………………………………………………………………………………………………….. 136
THEORY OF EXCESS CAPACITY ………………………………………………………………………………………………………………………. 138
PAST PAPER QUESTIONS ……………………………………………………………………………………………………………………………. 139
UNIT 10 ECONOMIC EFFICIENCY AND MARKET FAILURE ……………………………………………………………………. 144
PRODUCTIVE EFFICIENCY (PE) ……………………………………………………………………………………………………………………… 149
ALLOCATIVE EFFICIENCY (AE) ………………………………………………………………………………………………………………………. 151
MARKET FAILURE: …………………………………………………………………………………………………………………………………… 154
1. Over-allocation of resources: …………………………………………………………………………………………………………. 155
2. Under-allocation of resources: ………………………………………………………………………………………………………. 157
3. Missing Markets of Public Goods: …………………………………………………………………………………………………… 161
4. Imperfect knowledge ……………………………………………………………………………………………………………………. 164
5. Factor immobility …………………………………………………………………………………………………………………………. 164
6. Short termism ……………………………………………………………………………………………………………………………… 164
GOVERNMENT MICROECONOMIC OBJECTIVES: ………………………………………………………………………………………………….. 164
POLICIES TO CORRECT MARKET FAILURE OF NEGATIVE EXTERNALITIES AND DEMERIT GOODS ………………………………………………. 165
1. Indirect Taxes ………………………………………………………………………………………………………………………………. 165
2. Laws and Regulation …………………………………………………………………………………………………………………….. 166
3. Regulatory bodies ………………………………………………………………………………………………………………………… 167
4. Changes in property rights …………………………………………………………………………………………………………….. 167
5. Provision of Information ……………………………………………………………………………………………………………….. 167
6. Pollution Permits ………………………………………………………………………………………………………………………….. 168
POLICIES TO CORRECT MARKET FAILURE OF POSITIVE EXTERNALITIES AND MERIT GOODS …………………………………………………… 168
1. Subsidies …………………………………………………………………………………………………………………………………….. 168
2. Laws and Regulation …………………………………………………………………………………………………………………….. 169
3. Provision of Information ……………………………………………………………………………………………………………….. 169
4. The Direct Provision of Goods and Services ……………………………………………………………………………………… 169
POLICIES TO CORRECT MARKET FAILURE OF PUBLIC GOODS …………………………………………………………………………………….. 170
POLICIES TO CORRECT THE MARKET FAILURE OF IMPERFECT MARKETS ………………………………………………………………………… 170
COST-BENEFIT ANALYSIS (CBA): …………………………………………………………………………………………………………………… 171
ARE MONOPOLIES ALWAYS BAD FOR CONSUMERS? ……………………………………………………………………………………………. 172
PAST PAPERS QUESTIONS …………………………………………………………………………………………………………………………… 177
UNIT 11 LABOUR MARKET ……………………………………………………………………………………………………………. 188
THE SUPPLY CURVE ………………………………………………………………………………………………………………………………….. 188
1. Supply Curve for an Individual Worker ……………………………………………………………………………………………. 188
2. The Market Supply Curve for Labour ………………………………………………………………………………………………. 190
3. Supply of Labour for a Perfectly Competitive Firm: …………………………………………………………………………… 191
4. Supply of Labour in a Monopsony …………………………………………………………………………………………………… 192
5. Supply of labour with a Trade Union: ……………………………………………………………………………………………… 193
DEMAND FOR LABOUR OR MARGINAL REVENUE PRODUCT (MRP) THEORY: ……………………………………………………………….. 194
WAGE DETERMINATION IN PERFECT MARKET …………………………………………………………………………………………………….. 196
MONOPSONY …………………………………………………………………………………………………………………………………………. 199
TRADE UNION ………………………………………………………………………………………………………………………………………… 200
WAGE DIFFERENTIALS ……………………………………………………………………………………………………………………………….. 204
TRANSFER EARNINGS& ECONOMIC RENT ………………………………………………………………………………………………………… 207
PAST PAPER QUESTIONS ……………………………………………………………………………………………………………………………. 210
UNIT 12 INEQUALITY AND POLICIES TO REDISTRIBUTE INCOME ……………………………………………………………… 216
MEASURING INEQUALITY ……………………………………………………………………………………………………………………………. 216
1. Lorenz curve ………………………………………………………………………………………………………………………………… 216
2. Gini coefficient …………………………………………………………………………………………………………………………….. 218
3. Kuznets curve ………………………………………………………………………………………………………………………………. 220
GOVERNMENT POLICIES TO REDISTRIBUTE INCOME AND WEALTH ……………………………………………………………………………… 220
1. Providing benefits (transfer payments) …………………………………………………………………………………………… 220
2. Through the tax system ………………………………………………………………………………………………………………… 221
3. Other policies ………………………………………………………………………………………………………………………………. 222

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