Course Pack For Micro Economics

School of Business, Faculty of Management
Studies
University of Central Punjab, Lahore
Course Pack
On
Micro Economics
Course Instructor Prof. Dr. Qais Aslam
For B.B.A & M.B.A Students
Course Title Micro Economics for Business
Teacher’s Name: Professor Dr. Qais Aslam
Counselling Hours: 2 Hours per Week
Email: dr.qais@ucp.edu.pk
Teacher’s Website Address: http://online.ucp.edu.pk/
Course Code: ECO2003

Academic Program:
Semester:
Course Description: __________________________________________________________
Course Objectives: To enable students to understand the principles of micro economics -
demand, supply, Price, elasticities, cost of production, factor pricing, market structures and
revenue curves. thus production at its optimum with market restraints and cost restraints.
Course Requirements 2 X 1 & 1/2 hours weekly (3 hours) interactions with students for 16
weeks = 32 lectures; Quizzes; Assignments and presentations ending with Mid-term and Final-
Term Exams
Course Outcomes: Students at the end of the course should be able to know the basic
definitions of economics and the workings of the laws of the microeconomics in different market
conditions, calculating the least costs and therefore able of understand the principle of optimum
and profit maximization with cost minimization in line with the vision of UCP. (To become an
internationally acclaimed University in teaching and research) And Mission of UCP, (To provide
quality education to the youth of our nation in a stimulating and conducive learning environment
by equipping them with the intellectual and technological tools necessary to meet the challenges
of the future).
At the end of the course, the students would be able to understand the principles of basic
Microeconomics and able to calculate the optimum output levels as well as minimum costs levels
for maintaining profitability of the firm. Students would also be able to calculate the elasticity of
demand
Prerequisites: __________________________________________________________
Marks Breakup:
1. Assignments: 10
2. Quizzes: 10
3. Class Participation: 05
4. Presentations 05
5. Mid Term Examination: 30
6. Final Examination: 40
7. Total 100%
Course Readings:
1. Required Reading: Study Pack
2
Basic Required Text
 N. Gregory Mankiw, Principles of Economics. ,Haricot, 8th International
Edition
 McConnel, C. R. And Brue, S. L. Economics - Principles, Problems & Policies,
McGraw- Hill / Pearsons, 14th International Edition,
Other Readings.
2. Keat, Paul G. Young, Philip K. Y & Banerjee, Sreejata. 2009. Managerial Economics
Sixth Edition. Pearson
3. Stonier, Alfred W. & Hague, Douglas C. A Textbook of Economic Theory. The English
Language Book Society and Longman Group Limited. London. 1977. p 12
4. Boyes - Melvin. Economics. Houghton Mifflin Company Boston, USA. 1991.
Related Websites:
 (https://www.youtube.com/watch?v=1cYMW5d_bn4)
 (https://www.youtube.com/watch?v=LwLh6ax0zTE)
 (https://www.youtube.com/watch?v=o9eIN7G1WJ4)
 (https://www.youtube.com/watch?v=P_N2hr9aMow)
 (https://www.youtube.com/watch?v=HHcblIxiAAk)
 (https://www.youtube.com/watch?v=YK8Cx0_E7LQ)
 (https://www.youtube.com/watch?v=ucJBO9UTmwo)
 (https://www.youtube.com/watch?v=sj27WFj_ckM)
 (https://www.youtube.com/watch?v=51jAdRy_wk4 https://www.youtube.com/watch?
v=51jAdRy_wk4)
 (https://www.youtube.com/watch?v=eiq0xGIsMKY)

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Course Outline of Micro Economics for Business
(Lecture 1 & 2 – Week 1)

INTRODUCTION
 The Concept Of Scarcity, And Choice (https://www.youtube.com/watch?
v=1cYMW5d_bn4)
 What is Economics
 Economic & Non-Economic Goods
 Wealth: Utility; Scarcity; Mobility
 Scarcity & Choice
 Marginal Analysis
 Benefits & Costs
 Theories; Principles; Models
 Microeconomics & macroeconomics
 Positive & Normative Economics
 Limited Resources vs. Unlimited Wants
 Trade Off’s & opportunity Costs
 Growth & opportunity
 Concept Of Demand (https://www.youtube.com/watch?v=LwLh6ax0zTE)
 Concept Of Supply (https://www.youtube.com/watch?v=o9eIN7G1WJ4)
 Market Equilibrium And Price
 Rational Function Of Prices – Legal Prices
 Consumer Surplus and Producers surplus
THEORY OF CONSUMER BEHAVIOUR
 Concept Of Indifference Curves And Budget Constraint
(https://www.youtube.com/watch?v=P_N2hr9aMow)
 Consumer Equilibrium Condition
 Income Effect, Price Effect And Substitution Effect
 Price Elasticity Of Demand (https://www.youtube.com/watch?v=HHcblIxiAAk)
 Price Elasticity Formula
 Midpoint Formula
 Graphic Analysis And Total Revenue Tests
 Determinants Of Elasticity
 Cross Elasticity
 Income Elasticity Of Demand
 Point elasticity of Demand and Ark elasticity of Demand
 Price Elasticity Of Supply
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 Economies of Public Sector and Externalities Supply, Demand & Government Policies
 Inequality, Income and poverty - questions of Equity vs Efficiency
Mid Term Exam

THEORY OF PRODUCTION AND COST
 Law Of Variable Proportions (https://www.youtube.com/watch?v=YK8Cx0_E7LQ)
 Introduction To Traditional Cost Curves (https://www.youtube.com/watch?
v=ucJBO9UTmwo)
 Long Run Costs And Economies / Diseconomies Of Scale
(https://www.youtube.com/watch?v=JdCgu1sOPDo)
 Laws of Variable Proportions
 Concept Of Iso-Quants And Iso-Cost Line (https://www.youtube.com/watch?
v=sj27WFj_ckM)
 Producers Equilibrium
 Output Maximization And Cost Minimization
THEORY OF MARKETS
a) PERFECT COMPETITION
 Assumptions
 Revenue Curves
 Equilibrium Of A Firm Under Short And Lon Run
 Short And Long Run Supply Curves Of A Firm And Industry
 Pure Competition And Efficiency
 MONOPOLY
 Characteristics Of Monopoly
 Barriers To Entry
 Revenue Curves (https://www.youtube.com/watch?v=51jAdRy_wk4
https://www.youtube.com/watch?v=51jAdRy_wk4)
 Monopoly Demand, Output And Price Determination
 Economic Effects]Of Monopoly
 Price
 Discrimination
 Regulated Monopoly And The Concept Of Social Optimal Price And Fair Return Price
 Dilemma Of Regulation
 MONOPOLISTIC COMPETITION
 Features
 Price And Output Determination
 Monopolistic Competition And Economic Inefficiencies
 Non-Price Competition
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 Economies Of Advertising
 Monopolistic Competition And Economic Analysis
 OLIGOPOLY
 Concept And Occurrence
 Four Models: Kinked Demand Curve
 Collusion And Cartels
 Price Leadership
 Cost-Push Pricing
 FACTOR PRICING (https://www.youtube.com/watch?v=eiq0xGIsMKY)
 Significance Of Resource Pricing
 Marginal Productivity Theory Of Resource Demand
 Determinants Of Resource Demand
 Elasticity Of Resource Demand
 The Demand Curve For One Factor And Many Factors
 Derivation Of Supply Curve Of Labor
 Factor Pricing Under Perfect Competition In Both Product And Factor Market
 Monopoly In Product Market And Perfect Competition In Factor Market
 Monopoly In Product And Factor Market
 Theory of Consumer Choices and frontiers of microeconomics
 Some issues in Natural Resource Economics
 End Term Exam
6
Course Contents:
INTRODUCTION
 The Concept Of Scarcity, And Choice (https://www.youtube.com/watch?
v=1cYMW5d_bn4)
 What is Economics
 Economic & Non-Economic Goods
 Wealth: Utility; Scarcity; Mobility
 Scarcity & Choice
 Marginal Analysis
 Benefits & Costs
 Theories; Principles; Models
 Microeconomics & macroeconomics
 Positive & Normative Economics
 Limited Resources vs. Unlimited Wants
 Trade Off’s & opportunity Costs
 Growth & opportunity
Branches of Basic Economics

Micro Economic Concepts & application are: Concept of Consumer’s & Producer’s Supply &
Demand & its application
Macro-Economic Concepts are : Concept of Aggregate Demand & Aggregate Supply GNP, GDP
& its application in Economic Governance
Micro vs. Macro Economics
 Microeconomics is the study of how households and firms make decisions and how they
interact in specific markets
 Macroeconomics is the study of the economy as a whole or of Aggregates therefore
macroeconomics is a economy-wide phenomena with Government Interventions &
policy
Micro Economic Concepts
 Wealth
 Goods and services produced = Wealth
 Characteristics of Wealth:
1. Scarcity: The Diamond – Water Paradox
2. Mobility:
a) Territorial mobility
b) Legal mobility
c) Economic mobility and
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3. Utility: Power of a thing to satisfy a human need
Wealth
Goods and services produced (Value addition) are Wealth. Characteristics of Wealth:
1. Scarcity: The Diamond – Water Paradox
2. Mobility: (a) Territorial mobility b) Legal mobility and c) Economic mobility
3. Utility: Power of a thing to satisfy a human need
Rationality
It is assumed that Buyers are rational when they make decisions and that their preferences of
more to less at a give price is the best judge of how much benefits the consumers are going to
receive from the goods that they buy in the market at a price. Rational people Think at the
Marginal. Economists assume that ordinary people think rationally in ordinary business life –
consumers would demand (d) more for less money and suppliers would supply (s) less for more
money. Economists take into consideration the small incremental changes (adjustments) for
every action and call them marginal changes (∆x/ ∆y). Economists assume that rational people
think on the margin. The Equi-marginal Principle = the rate of change of opposing forces in
economics is equal.
Marginal
Rational people think on the marginal = incremental increase in things. Economics measures:
 marginal utility,
 marginal revenue,
 marginal cost,
 marginal product
People Respond to Incentives
Incentives are rewards or punishments that induce people to change behaviors. Because people
make decisions by comparing costs (c) and benefits, their behavior may change when costs or
benefits change, therefore incentives help change behavior of people. Change in costs or benefits
through increase or decrease in Price would change demand or supply of different goods and
services
Rationality
It is assumed that Buyers are rational when they make decisions and that their preferences of
more to less at a give price is the best judge of how much benefits the consumers are going to
receive from the goods that they buy in the market at a price
 Rational people Think at the Marginal
Economists assume that ordinary people think rationally in ordinary business life – consumers
would demand (d) more for less money and suppliers would supply (s) less for more money
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Economists take into consideration the small incremental changes (adjustments) for every action
and call them marginal changes (∆x/ ∆y)
Economists assume that rational people think on the margin
Equi-marginal Principle = The rate of change of opposing forces in economics is equal
Marginal
Rational people think on the marginal = incremental
a) marginal utility,
b) marginal revenue,
c) marginal cost,
d) marginal product
 People Respond to Incentives
Because people make decisions by comparing costs (c) and benefits, their behavior may change
when costs or benefits change, therefore incentives help change behavior of people
Incentives are rewards or punishments that induce people to change behaviors
Change in costs or benefits through increase or decrease in Price would change demand or
supply of different goods and services
Ten Principles of Economics
1. People Face Tradeoff’s
2. There are Opportunity Costs to every Decision
3. Rational People think on the Margin
4. People Respond to Incentives
5. Trade Increases Welfare of all
6. Markets are efficient
7. Governments can increase efficiency of the market
8. Production of Goods and services increases Incomes and wealth
9. Increase in incomes increases inflation and prices
10. Short-term tradeoff’s have to be made between inflation and employment
Households face many decisions – how to satisfy their unlimited needs with limited income (Y)
or Resources
Society faces many decisions – allocation of different people (factors of production) to different
jobs and allocation of goods and services produced (wealth) by them to satisfy different needs
of the people
Management of society’s resources is important because Resources are
 Scarce
 People Face Trade off’s
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 Making decisions require trading off one goal against another
 Society’s trade off might be - more guns for defense or more education for development
or cleaner environment for better health or more industry for more employment and
incomes
All because resources are Scarce
Efficiency vs. Equity
Efficiency refers to the size of the economy that distributes scarce resources through the
Market system of demand and supply called Price (P) Mechanism and allocates them from
areas where these resources are less demanded to areas where they are demanded more
therefore Priced higher
Equity refers to the distribution of economic prosperity fairly (judiciously) among all the
members of the society through some form of Public (govt.) intervention
2. Principle of Opportunity Costs
Because people face trade off’s, making decisions require comparing costs and benefits of
alternative course of action
Opportunity Costs is giving up something or some opportunity in order to obtain something
else.
All actions (individual or collective) in a society have opportunity costs
Cost of production
Price of factors of production is the private
Cost of Production (inputs)
Price of Land = Rent
Price of Labor = Wages
Price of Capital =Interest
Price of Entrepreneur (Organization) = Nominal
Profits
Private Costs + Environmental Costs = Social Costs
Private Benefits + Environmental benefits = Social Benefits
MSC = MSB
3. Rational people Think at the Marginal
Economists assume that ordinary people think rationally in ordinary business life – consumers
would demand (d) more for less money and suppliers would supply (s) less for more money
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Economists take into consideration the small incremental changes (adjustments) for every
action and call them marginal changes
(∆x/ ∆y)
Economists assume that rational people think on the margin
Equi-marginal Principle = The rate of change of opposing forces in economics is equal
4. People Respond to Incentives
Because people make decisions by comparing costs (c) and benefits, their behavior may change
when costs or benefits change, therefore incentives help change behavior of people
Incentives are rewards or punishments that induce people to change behaviors
Change in costs or benefits through increase or decrease in Price would change demand or
supply of different goods and services
Welfare
Community’s Welfare =
Consumer surplus (increase in demand)
+
Producer surplus (increase in supply)
+
Government’s revenue (increase in Public revenue through income tax on enhanced incomes
and GST or enhanced consumption as tax)
5. Trade can make every one better off
Free Trade gives greater access to markets, brings in competition, reduces costs, help increase
quality of products and gives greater choices to people
Exports help increase domestic production of comparatively cheaper products, increases
employment of efficient resources, increases incomes, enhances domestic consumption, brings
down costs of production and equi9lizes international prices, thus help the equilibrium in
balance of payments and stabilizing the exchange rate between nations
Imports helps put on domestic markets much needed goods, services, raw materials and
machines that are expensive to produce at home or can not be produced with domestic factor
endowments, helps bring down domestic prices, gives a greater spectrum of choices to
consumers at home and helps increase the quality of domestic products through international
competition
Thus International trade increase consumer surplus, producers surplus and revenue to the
government = welfare and economic growth and makes every one better off
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6. Markets are usually efficient
Market economy is a system through which resources are allocated and decisions are
decentralized through many firms and households as they interact in the market for goods and
services and factors of production (resources)
Markets work through the “invisible hand of self-interest”
Increase in Demand induces Price to rise while supply increase when prices are high.
For increase in supply , production has to increase,
Increase in production in turn needs higher demand of factors of production,
thus increasing the price of factors in the market and
forcing the movement of these factors (resources from less paid jobs to higher paid jobs) and
efficiently re-allocating resources through the Price system of the market,
and increasing the incomes of the factors in the long run,
which in turn also influences an increase in consumptions and saving patterns in the economy
Thus increasing the efficiency of the economy through the market (Price) system
Market Prices
Market Prices reflect both the value of a good to the society as well as the cost to the society of
producing that good.
Bothe house holds and firms look at prices when deciding to buy and sell
They unknowingly take into account the social benefits and social costs of their actions , and
therefore by trying to maximize their own welfare, they maximize the welfare of the society
Market Price is the interaction of the opposing forces of demand and supply in the Free market
7. Governments can sometimes improve Market outcome or to ensure Equity
There are two reasons why governments intervene in the economy –
Governments intervene to improve market efficiency :
Or
Governments intervene to promote equity
Or
Governments intervene when Markets fail
Market failure - when the market fails to allocate resources efficiently and does not promote
welfare or wellbeing of the stake holders
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8. A Country’s standard of Living Depends on its ability to Produce more goods and Services
Difference of living standards around the world are staggering and
Changes in living standards over time is also large
This is attributed to Productivity
Productivity - is the quantity of goods and services (wealth) that can be produced (output) from
each hour of work time with different set of capital and labor inputs (resources)
Growth rate of a country’s national productivity determines the country’s national employment
levels (GDP) and the country’s national income levels (GDP)
Productivity is the primary determinant of the living standard of each individual and household,
and thus of the society.
Productivity comes from skill enhancement of the individual and the capacity of the individual
to work with modern machines and technology
This capacity (skill enhancement or productivity) is enhanced by improving the standard of
scientific and vocational education at all levels – primary to professional
To enhance standard of living, Policy makers need to raise productivity by ensuring that
workers are well educated and have the tools (technology) needed to produce more, better and
cheaper goods and services
Economics is a Social Science. Economics is a science which shows us from where people get
their income and how they spent it in ordinary buisness life. Whether people are wealthy or poor,
they want more and more goods and services to buy from their income and their need for more is
never satisfied. But how ever rich one can get our incomes never seems to be enough to buy
everything that we wish for and all our wants never seem to be satisfied. Our wants are unlimited
and our resources limited. The problem of satisfying our unlimited wants that repeat themselves
over and over again, with limited incomes, time and resources, which can have alternate usage is
called an Economic Problem.
Scarcity is a term which mean, when people want more of a thing than its availability at zero
price, or when the resources available are not enough to satisfy the unlimited desires of the
people, individually or as a community both. Air is free, even when lack of it for more than 5
seconds can kill us, therefore air is a free good, but if more and more trees are cut down in order
to make way for carbon dioxide emitting motor cars, then very soon the polluted air would make
fresh air scarce and it would be transformed into an economic good and people would have to
pay for a sniff of fresh air. In other words, economic Goods are all those goods that are scarce,
while non-economic goods are free goods or those goods for which there is no scarcity. Bad
good is that in economics where one has to pay to have less of it. Rational self-interest is how
people make their choices, while unlimited wants are desire for goods and services which does
not end and at the same time repeat themselves. While making a rational decision, economist
believe, that people will make a choice that, at that time and with the information they have at
their disposal, will give them the greatest amount of satisfaction.
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Price: The price of a commodity, a good, a service or a factor of production is the rate at which it
can be exchanged for anything else. "When the price of any good is determined in the market for
that good, it is because usefulness and scarcity express themselves concretely in the form of the
demand of buyers on the one hand and supply by sellers on the other".
The Market: Supply and demand interact in the market in order to determine prices of
commodities.
Resource or Factors of Production would include the following four categories:
(i) Land: land, which include all natural resources, such as minerals, forests, water as well as the
soil of the land itself.
(ii) Labor: labor, which are people themselves who offer for sale or hire, their own physical of
intellectual abilities in order to produce new goods and services. Labor would include, education,
training, skills, and personal abilities of individual people.
(iii) Capital: capital, which would include all those things which help increase the value of a
primary product, or which help transform the original shape or quality of a product. Capital will
include machines, tools, equipment and raw materials used in production of other goods. Goods
and equipment like machine or factory which does not change its own shape, but help produce
other product over a longer period of time are called fixed capital, while all goods like iron,
wood, cotton etc. which change their own shape in a productive process and every time have to
be bought anew to start a new phase of production are called working capital. Money is also a
form of working capital. Financial capital represents the money value of capital. According to
W. Boyes & M. Melvin "In economics capital refers to physical entity - machinery, and
equipment and offices, warehouses, and factories."
(iv) Entrepreneur: entrepreneur or organization is a person or a group of persons who can
recognize an opportunity to make a profit, who are ready to take a risk for that profit, are willing
and have an ability to hire and organize land, labor and capital and can take a decision of what to
produce, where to produce and how to produce.
Land, Labor, capital and Entrepreneur and also called factors of production. When employed as
factors of production each of them earn their respective incomes. Income is the return for the use
of factor of production and can be received by them in the process of production or employment
only; owner of land receive rent from it; laborers receive wages and salaries for their physical or
intellectual labor; owners of capital receive interest for it; and entrepreneurs receive profit for
their risk taking, for organizing the other factors of production, for running their buisness units,
and for selling off the produce in the market. If the costs of production or payments for the other
factors of production are higher than the money received from selling off the finished produce or
returns, than the entrepreneurs can incur a loss, rather than a profit.
Because factors of production, i.e. land, labor, capital and entrepreneurs are scarce, income
from them is also limited. Income is used by the owners of the factors of production or
households to purchase the goods and services that they have produced employed in the
production process or businesses. Purchase of goods and services by people is to satisfy their
respected wants, needs and desires. Income spent on final goods in order to satisfy personal
needs and wants of people is called Consumption expenditure, while income spent on goods and
services in order to re-employ them to produce new goods and services is called Investment
expenditure. Income not spent of Consumption expenditure or Investment expenditure is called
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Savings. The production process is the supply side economics, while Consumption is the demand
side economics. Goods that are used over a period of one year or more, such as TV's VCR's,
automobiles etc. are called Consumer durables, while those that can be consumed in a short
period of time are called nondurables. Services are the work of people done for others which
does not include physical production of goods, i.e. teaching of a professor, consultation of a
doctor, transport facility provided to commuters and travelers, internet connection, insurance etc.
Branches of Basic Economics
Micro Economics and Macro Economics: microeconomics is the study of economics at the
level of the individual worker, individual consumer, individual firm or individual industry;
macroeconomics on the other hand is the study of the economy as a whole or economy "at an
aggregate level". Microeconomics is the study of how households and firms make decisions and
how they interact in specific markets. Micro Economic Concepts & application: Concept of
Consumer’s & Producer’s Supply & Demand & its application.
Macroeconomics looks at the behavior of the economy as a whole, when all the individual
variables, constants and parameters of economics are working together and overlapping each
other. This would include the economic activity of all the Consumers of final goods and
investment goods, the producers in the economy, the buisness sector combined with all other
sectors of the economy, the government sector as well as the international market and economic
activity and their collective and respective effects on one another and the economy as a whole.
Microeconomics would give us the working of the tools of economics and Macroeconomics
would give us the policy making and working of the whole economy. Macroeconomics is the
study of the economy as a whole or of Aggregates therefore macroeconomics is a economy-wide
phenomena with Government Interventions & policy. Macro-Economic Concepts: Concept of
Aggregate Demand & Aggregate Supply; GNP, GDP & its application in Economic Governance
Circular Flow of National Income (GDP = Y) shows that Households supply to Firms their
Abilities and Assets as Factors of Production which are employed (Demanded) by firms in order
to produce Goods and Services Supplied by the Firms to the Households through the Market,
demanded by the Households from the income that the households have earned by employing
themselves at the firms as producers of goods and services and use this income for expenditure in
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order to buy (demand) these goods and services from the firms that supply them to the
households for their final consumption and satisfaction.

Demand Analysis (https://www.youtube.com/watch?v=LwLh6ax0zTE)
Demand Analysis
Hidden hand of the force of Demand and Supply. Demand and supply make market economies
work and determine the quantity of goods and services produced and the prices at which they are
sold. Interaction of Demand and Supply determine the Price of any goods, services, factors of
production, shares, stocks, and even exchange rates between different currencies. Rise and fall in
prices effect the demand and supply of goods and services in the market. Also price levels and
price fluctuations are effected by an increase or decrease in demand or supply or both demand
and supply of every and all commodities and factors.
Demand Function: Demand is the wish of the consumer combined with his or her's buying
power, or demand is the quantity of a particular commodity, which the consumer is willing to
buy or is able to buy at each point of possible price schedule in a given period of time. Demand
would mean demand of a commodity at every price, while Quantity demanded will mean
demand of a commodity at one particular price. Example: Statement that `Demand for ice cream
fell during the winter' would mean that people buy less ice cream in winter, whatever the price of
ice cream during that season, while statement that `the quantity of ice cream demanded fell from
100 kilograms a day to 50 kilograms a day when price of ice cream rose from $ 5.00 per
kilograms to $ 10 per kilograms' would mean that, when price of ice cream increased so rapidly,
fewer and fewer people were able to afford to buy ice cream daily.
Demand = Act of Buying in the market. Quantity demanded is the amount of goods and services
that buyers are willing to buy and able to purchase with their money (resources) and depend on:
 Need or Wants of the buyer (purchaser)
 Buying power of the purchaser
 Willingness to purchase
Law of Demand
Law of Demand: Law of demand refers to an inverse relationship of Demand with Price. The
law states: Other things remaining the same during a particular period of time, when price rises,
demand contracts, and when price falls, demand expands. The law simply explains that, as the
prices of things rise, people won't be able to afford or would not be willing to pay for the same
amount of the commodity that they were previously buying or affording, and opposite is also
true, that as the prices of things fall, people are willing to buy or can afford more of the same
thing. Example: If price of joggers in the city of Lahore, increase from $ 10 per pair to $ 15 per
pair during the annual sports season, than people less people would afford to buy themselves a
new pair of joggers and therefore there would be a decrease in the amount of joggers sold during
that particular period, due to a decrease in their demand, but if there is a decrease in the price of
joggers in the city of Lahore, from $ 10 per pair to $ 5 per pair during the annual sports season,
than more people would buy themselves a new pair of joggers in order to participate in the sports
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event, because now with a lower price their buying power has increased, thus expanding their
Demand for joggers during that period.
Law of Demand:
Other Things Remaining constant, When Price (P) of a commodity increases, the quantity
demanded of that commodity (qd) contracts; and when Price (P) of a commodity decreases,
the quantity demanded of that commodity (qd) expands
qd=f ¿a,b; Taste & Habit; weather conditions; fashion; etc a, b, c, ….., n.)
Where P = Price; y = income levels of the consumer; Pa,b = Prices of other products; etc. a,b, c
…., n are other factors assumed constant in the model
qd = a – bP
Inverse Relationship = Demand Curve is Negatively Sloped Or it falls from left to right
Demand Schedule: A demand schedule is a table where quantity demanded of a certain

commodity is noted down corresponding to the commodities’ respective prices in a certain time
period. The demand schedule for joggers during the annual sports period in the city of Lahore is:
Price per pair: $5 $ 10 $ 15
Quantity demanded in 1000 pairs: 15 10 5
Demand Curve: a Demand Curve is a graph of a demand schedule. It is a curve which is drawn
after plotting down all points of quantity demanded at their respective price levels, and then
joining those points into a curve. Price is seen on the y-axis and quantity demanded on the x-axis
of the Demand graph. Demand Curve for joggers during the annual sports period in the city of
Lahore, according to the above price change is:
When price was $ 5 the total quantity of joggers demanded during the annual sports period in the
city of Lahore was 15,000 pairs of joggers; when price of joggers rose to $ 10, the quantity
17
demanded contracted to 10,000 pairs of joggers during the same period; and when the price rose
to $ 15, the quantity demanded further contracted to only 5,000 pairs of joggers. Vice versa,
when Price was $ 15 quantity demanded was only 5,000 per pairs; when price was $ 10 per pair,
the quantity demanded expanded to 10,000 pairs; when the price fell to $ 5 per pair, the quantity
demanded further expanded to 15,000 pairs.
Slope of the demand Curve: Because there is an inverse relationship between the price and
quantity demanded, the slope of the Demand curve is always negative; i.e. the demand curve
always falls from left to right. The shape of the demand curve is not defined. For example, it can
be a straight line, or an arc, convex or concave to the origin.
Reasons for Demand curve sloping downwards or a negative Demand schedule:
Reasons for negative relationship between Price and Demand are Price Effect, Income Effect
(Buying Power) and Substitution Effect (Prices of other Commodities)
1. Price Effect: Demand is a measure of the relationship between the price and quantity
demanded of a particular good and service when the other factors do not change. When price
becomes high, people's buying power tend to become low thus suppressing their demand for
different goods and services, and when price falls, people's buying power tends to rise, thus
increasing their power to buy different goods and services and when they do increase the
consumption of one or another good, than the quantity demanded expands. There is an inverse
relationship between price and quantity demanded. When there is a change in price, demand
changes in the inverse order because of an income effect as well as a substitution effect.
2. Income Effect: is the change in quantity demanded that occurs when the purchasing power of
income is altered as a result of a change in price. In other words, when price of a commodity
increases, the consumers re-allocate their limited incomes among what would be a more
expensive set of goods and services, the purchasing power of their income having fallen. The
change in quantity demanded that occurs when the purchasing power of income has altered
because of a change in price is called income effect.
3. Substitution Effect: The opportunity cost of purchasing a unit of a good whose price has
risen, when due to an increase in its price more of some other goods will have not to be bought is
what determines the substitution effect. As a result the consumer would prefer to buy a less
expensive commodity (substitute) serving the same purpose so that he or she may not have to
make a bigger sacrifice in not buying other goods with their limited incomes, when the price of
one or another commodity goes up. The tendency of consumer’s to purchase less expensive
goods and services that satisfy their same needs as the original good whose price has gone up is
called substitution effect.
Price Effect = Income Effect + Substitution Effect Movement and shift of the demand
Curve: "A change in the quantity demanded is a movement along the demand curve. A change
in demand is a shift of the demand curve". When there is an expansion or contraction in the
quantity demanded, this is due to a fall or rise in price of that commodity, therefore there is a
movement on the Demand curve. Example: (a) when the price of joggers will rise, quantity
demanded will contract and demand will move down the slope of the demand curve; (b) when
the price of joggers will fall, quantity demanded will expand and demand will move up the slope
of the demand curve.
18
When there is a rise or fall in Demand, due to a change in the factors other than price, which
influence the consumers demand, there will be a shift of the demand curve itself. Example: (a)
with no change in price, when people consume more ice cream during the summer season, the
demand for ice cream rises and the demand curve will shift upwards to the right; (b) with no
change in price of ice cream, when people consume less ice cream during the winter season, the
demand for ice cream falls, and the demand curve will shift downwards to the left.
Individual And Market Demand Curves:
An individual's demand curve for a commodity is derived from the combination of quantities
demanded at different prices of the same commodity, from the demand schedule of that
commodity. The price-quantity combination gives us the demand curve which is downwards
sloping, or negative to price.
In order to derive the market demand curve of a particular commodity, the individual demand
curves of all the consumers in the market at a particular time period must be added together.
While driving the market demand curve, the quantities at each price are added together in a
horizontal direction, and not the prices at each quantity. After adding all the quantities demanded
by all the consumers at each price level, we get the total or market quantity demand curve of the
commodity.
If we take the chocolates bought by Aryan, Danyal and Raul during a month at different price
levels in order to chalk out the market demand curve of chocolates during that month. When
price of chocolates was $ 1 - Raul bought 10 chocolates, Danyal bought 7, and Aryan bought 3,
therefore total marker quantity demand for chocolates was 20 at price of $ 1; when the price of
chocolates suddenly shot up to $ 5 - Raul’s quantity demanded for chocolates contracted to 7
chocolates, Denial’s to 3 and Aryan's to only 1, which gives us a total market quantity demanded
of only 11 chocolates at a price of $ 5 per chocolate. Market Demand Curve shows the total
quantity demanded of various goods varies as the price of the good varies
Other Things (apart from Price) that Influence Demand
 Income (y)
 Prices of Other Goods: Substitutes or Complements)
 Tastes & Habits
 Weather conditions
 Fashion
 Drugs, Narcotics and Addiction
 Life Saving Medicines
 Antiques and Artifacts
Other Factors: Factors other than Price, which can influence Demand are:
i) Income of a consumer: the higher the income of a consumer, the higher his or her's
buying power, therefor higher their demand. The lower a consumer’s income, the lower their
buying power and therefore lower would be their demand;
(ii) Tastes and habits of the consumer: tests and habits of a consumer determines his or
her's preferences of one or another goods and therefore their demand for these goods. Even a
19
change in prices of goods sometimes does not lead to a change in quantity demanded, because
the preferences of the consumer usually remain constant;
(iii) Expectations of the consumer: expectations about the future can have an effect on
current demand. Expectations for more future income might increase current demand, while
expectation for less future income might suppress current demand;
(iv) Number of buyers: market demand will increase in the number of buyers in a certain
market increase, and market demand will decrease if the number of buyers will decrease;
(v) fashion: if hats are in fashion during a certain time period, than demand for hats will
increase, even if their price remains constant and if hats go out of fashion during another time
period, than their demand will decrease, even if their price remains the same during that period;
(vi) weather conditions: for example, demand for warm clothes increases during the
winter season, demand for rain coats and umbrellas increase during the rainy season, and demand
for light cloths, ice and ice cream increases during the summer season and vice versa;
(vii) knowledge of the people: for example, if people’s knowledge increases that a
particular commodity is bad for their health, its demand will fall, while if people come to know
that the use of a certain commodity is good for them then its demand rises;
(viii) prices of related goods: (a) if prices of a good that has a substitutes (goods that can
be used in place of each other like coffee and tea, are called substitutes) increase than people will
contract the quantity demanded of that particular goods and would increase the demand of the
substitute and vive versa; (b) if prices of a good that has a complementary good (goods that are
used together like bat and ball) increase, than the quantity demanded of that good will contract,
and the demand for the complementary good will also contact with it, and vice versa.
Shift of the demand curve
Shift of the demand curve is due to a change in other things
20
Movement on the demand curve is due to change in Price
 Price Vs. Other Things
 Expansion Vs. Increase
 Contraction vs. Decrease
 Quantity Demanded vs. Demand
 Movement Vs. Shift of the curve
Consumer Surplus
Is the Money Value of the Purchasing Power of a Consumer? When Price Rises, Consumer
Surplus Decreases. When Price Falls, Consumer Surplus Increases

 Supply Analysis (https://www.youtube.com/watch?v=o9eIN7G1WJ4)
Supply Analysis
Stock = Amount of goods ready to be sold in the market, while Supply is the Act of Selling.
Quantity supplied is the amount of goods that sellers (and producers) are willing and able to sell
at a Price
Determinants of Supply:
 Price
 Input prices
 Technology levels
 Expectations
 Transport costs
 Storage capacity
 Law of supply
Law of Supply: Other things remaining the same (ceteris paribus or assumed to be constant)
“When price of a commodity increases, its quantity supplied (qs) also expands and when
Price of a commodity decreases its quantity supplied (qs) also contracts” or There is a
Positive relationship between Price and quantity supplied
21
Reason for positive relationship between price and Supply: When Price increase Profits tend to
increase therefore suppliers increase supply because they get incentive to sell and when Prices
decrease Profit margins tend to decline therefore the incentive to sell diminishes and suppliers
tend to decrease supply. The quantity supplied in the market depends upon those factors that
determine quantity supplied by individual sellers while Profit is the only motive to supply
goods and services in the market
Movement on the Supply curve is due to change in Price, while shift of the Supply Curve is due
to change in other factors
22
 Price Analysis
 Market Equilibrium And Price
 Rational Function Of Prices – Legal Prices
Demand Analysis
Hidden hand of the force of Demand and Supply. Demand and supply make market economies
work and determine the quantity of goods and services produced and the prices at which they are
sold. Interaction of Demand and Supply determine the Price of any goods, services, factors of
production, shares, stocks, and even exchange rates between different currencies. Rise and fall in
prices effect the demand and supply of goods and services in the market. Also price levels and
price fluctuations are effected by an increase or decrease in demand or supply or both demand
and supply of every and all commodities and factors.
Demand Function: Demand is the wish of the consumer combined with his or her's buying
power, or demand is the quantity of a particular commodity, which the consumer is willing to
buy or is able to buy at each point of possible price schedule in a given period of time. Demand
would mean demand of a commodity at every price, while Quantity demanded will mean
demand of a commodity at one particular price. Example: Statement that `Demand for ice cream
fell during the winter' would mean that people buy less ice cream in winter, whatever the price of
ice cream during that season, while statement that `the quantity of ice cream demanded fell from
100 kilograms a day to 50 kilograms a day when price of ice cream rose from $ 5.00 per
kilograms to $ 10 per kilograms' would mean that, when price of ice cream increased so rapidly,
fewer and fewer people were able to afford to buy ice cream daily.
Demand = Act of Buying in the market. Quantity demanded is the amount of goods and services
that buyers are willing to buy and able to purchase with their money (resources) and depend on:
 Need or Wants of the buyer (purchaser)
 Buying power of the purchaser
 Willingness to purchase
Law of Demand
Law of Demand: Law of demand refers to an inverse relationship of Demand with Price. The
law states: Other things remaining the same during a particular period of time, when price rises,
demand contracts, and when price falls, demand expands. The law simply explains that, as the
prices of things rise, people won't be able to afford or would not be willing to pay for the same
amount of the commodity that they were previously buying or affording, and opposite is also
true, that as the prices of things fall, people are willing to buy or can afford more of the same
thing. Example: If price of joggers in the city of Lahore, increase from $ 10 per pair to $ 15 per
pair during the annual sports season, than people less people would afford to buy themselves a
new pair of joggers and therefore there would be a decrease in the amount of joggers sold during
that particular period, due to a decrease in their demand, but if there is a decrease in the price of
joggers in the city of Lahore, from $ 10 per pair to $ 5 per pair during the annual sports season,
than more people would buy themselves a new pair of joggers in order to participate in the sports
23
event, because now with a lower price their buying power has increased, thus expanding their
Demand for joggers during that period.
Law of Demand:
Other Things Remaining constant, When Price (P) of a commodity increases, the quantity
demanded of that commodity (qd) contracts; and when Price (P) of a commodity decreases,
the quantity demanded of that commodity (qd) expands
qd=f ¿a,b; Taste & Habit; weather conditions; fashion; etc a, b, c, ….., n.)
Where P = Price; y = income levels of the consumer; Pa,b = Prices of other products; etc. a,b, c
…., n are other factors assumed constant in the model
qd = a – bP
Inverse Relationship = Demand Curve is Negatively Sloped Or it falls from left to right
Demand Schedule: A demand schedule is a table where quantity demanded of a certain

commodity is noted down corresponding to the commodities’ respective prices in a certain time
period. The demand schedule for joggers during the annual sports period in the city of Lahore is:
Price per pair: $5 $ 10 $ 15
Quantity demanded in 1000 pairs: 15 10 5
Demand Curve: a Demand Curve is a graph of a demand schedule. It is a curve which is drawn
after plotting down all points of quantity demanded at their respective price levels, and then
joining those points into a curve. Price is seen on the y-axis and quantity demanded on the x-axis
of the Demand graph. Demand Curve for joggers during the annual sports period in the city of
Lahore, according to the above price change is:
When price was $ 5 the total quantity of joggers demanded during the annual sports period in the
city of Lahore was 15,000 pairs of joggers; when price of joggers rose to $ 10, the quantity
24
demanded contracted to 10,000 pairs of joggers during the same period; and when the price rose
to $ 15, the quantity demanded further contracted to only 5,000 pairs of joggers. Vice versa,
when Price was $ 15 quantity demanded was only 5,000 per pairs; when price was $ 10 per pair,
the quantity demanded expanded to 10,000 pairs; when the price fell to $ 5 per pair, the quantity
demanded further expanded to 15,000 pairs.
Slope of the demand Curve: Because there is an inverse relationship between the price and
quantity demanded, the slope of the Demand curve is always negative; i.e. the demand curve
always falls from left to right. The shape of the demand curve is not defined. For example, it can
be a straight line, or an arc, convex or concave to the origin.
Reasons for Demand curve sloping downwards or a negative Demand schedule:
Reasons for negative relationship between Price and Demand are Price Effect, Income Effect
(Buying Power) and Substitution Effect (Prices of other Commodities)
1. Price Effect: Demand is a measure of the relationship between the price and quantity
demanded of a particular good and service when the other factors do not change. When price
becomes high, people's buying power tend to become low thus suppressing their demand for
different goods and services, and when price falls, people's buying power tends to rise, thus
increasing their power to buy different goods and services and when they do increase the
consumption of one or another good, than the quantity demanded expands. There is an inverse
relationship between price and quantity demanded. When there is a change in price, demand
changes in the inverse order because of an income effect as well as a substitution effect.
2. Income Effect: is the change in quantity demanded that occurs when the purchasing power of
income is altered as a result of a change in price. In other words, when price of a commodity
increases, the consumers re-allocate their limited incomes among what would be a more
expensive set of goods and services, the purchasing power of their income having fallen. The
change in quantity demanded that occurs when the purchasing power of income has altered
because of a change in price is called income effect.
3. Substitution Effect: The opportunity cost of purchasing a unit of a good whose price has
risen, when due to an increase in its price more of some other goods will have not to be bought is
what determines the substitution effect. As a result the consumer would prefer to buy a less
expensive commodity (substitute) serving the same purpose so that he or she may not have to
make a bigger sacrifice in not buying other goods with their limited incomes, when the price of
one or another commodity goes up. The tendency of consumer’s to purchase less expensive
goods and services that satisfy their same needs as the original good whose price has gone up is
called substitution effect.
Price Effect = Income Effect + Substitution Effect Movement and shift of the demand
Curve: "A change in the quantity demanded is a movement along the demand curve. A change
in demand is a shift of the demand curve". When there is an expansion or contraction in the
quantity demanded, this is due to a fall or rise in price of that commodity, therefore there is a
movement on the Demand curve. Example: (a) when the price of joggers will rise, quantity
demanded will contract and demand will move down the slope of the demand curve; (b) when
the price of joggers will fall, quantity demanded will expand and demand will move up the slope
of the demand curve.
25
When there is a rise or fall in Demand, due to a change in the factors other than price, which
influence the consumers demand, there will be a shift of the demand curve itself. Example: (a)
with no change in price, when people consume more ice cream during the summer season, the
demand for ice cream rises and the demand curve will shift upwards to the right; (b) with no
change in price of ice cream, when people consume less ice cream during the winter season, the
demand for ice cream falls, and the demand curve will shift downwards to the left.
Individual And Market Demand Curves:
An individual's demand curve for a commodity is derived from the combination of quantities
demanded at different prices of the same commodity, from the demand schedule of that
commodity. The price-quantity combination gives us the demand curve which is downwards
sloping, or negative to price.
In order to derive the market demand curve of a particular commodity, the individual demand
curves of all the consumers in the market at a particular time period must be added together.
While driving the market demand curve, the quantities at each price are added together in a
horizontal direction, and not the prices at each quantity. After adding all the quantities demanded
by all the consumers at each price level, we get the total or market quantity demand curve of the
commodity.
If we take the chocolates bought by Aryan, Danyal and Raul during a month at different price
levels in order to chalk out the market demand curve of chocolates during that month. When
price of chocolates was $ 1 - Raul bought 10 chocolates, Danyal bought 7, and Aryan bought 3,
therefore total marker quantity demand for chocolates was 20 at price of $ 1; when the price of
chocolates suddenly shot up to $ 5 - Raul’s quantity demanded for chocolates contracted to 7
chocolates, Denial’s to 3 and Aryan's to only 1, which gives us a total market quantity demanded
of only 11 chocolates at a price of $ 5 per chocolate. Market Demand Curve shows the total
quantity demanded of various goods varies as the price of the good varies
Other Things (apart from Price) that Influence Demand
 Income (y)
 Prices of Other Goods: Substitutes or Complements)
 Tastes & Habits
 Weather conditions
 Fashion
 Drugs, Narcotics and Addiction
 Life Saving Medicines
 Antiques and Artifacts
Other Factors: Factors other than Price, which can influence Demand are:
i) Income of a consumer: the higher the income of a consumer, the higher his or her's
buying power, therefor higher their demand. The lower a consumer’s income, the lower their
buying power and therefore lower would be their demand;
(ii) Tastes and habits of the consumer: tests and habits of a consumer determines his or
her's preferences of one or another goods and therefore their demand for these goods. Even a
26
change in prices of goods sometimes does not lead to a change in quantity demanded, because
the preferences of the consumer usually remain constant;
(iii) Expectations of the consumer: expectations about the future can have an effect on
current demand. Expectations for more future income might increase current demand, while
expectation for less future income might suppress current demand;
(iv) Number of buyers: market demand will increase in the number of buyers in a certain
market increase, and market demand will decrease if the number of buyers will decrease;
(v) fashion: if hats are in fashion during a certain time period, than demand for hats will
increase, even if their price remains constant and if hats go out of fashion during another time
period, than their demand will decrease, even if their price remains the same during that period;
(vi) weather conditions: for example, demand for warm clothes increases during the
winter season, demand for rain coats and umbrellas increase during the rainy season, and demand
for light cloths, ice and ice cream increases during the summer season and vice versa;
(vii) knowledge of the people: for example, if people’s knowledge increases that a
particular commodity is bad for their health, its demand will fall, while if people come to know
that the use of a certain commodity is good for them then its demand rises;
(viii) prices of related goods: (a) if prices of a good that has a substitutes (goods that can
be used in place of each other like coffee and tea, are called substitutes) increase than people will
contract the quantity demanded of that particular goods and would increase the demand of the
substitute and vive versa; (b) if prices of a good that has a complementary good (goods that are
used together like bat and ball) increase, than the quantity demanded of that good will contract,
and the demand for the complementary good will also contact with it, and vice versa.
Shift of the demand curve
Shift of the demand curve is due to a change in other things
27
Movement on the demand curve is due to change in Price
 Price Vs. Other Things
 Expansion Vs. Increase
 Contraction vs. Decrease
 Quantity Demanded vs. Demand
 Movement Vs. Shift of the curve
Consumer Surplus
Is the Money Value of the Purchasing Power of a Consumer? When Price Rises, Consumer
Surplus Decreases. When Price Falls, Consumer Surplus Increases
Supply Analysis
Stock = Amount of goods ready to be sold in the market, while Supply is the Act of Selling.
Quantity supplied is the amount of goods that sellers (and producers) are willing and able to sell
at a Price
Determinants of Supply:
 Price
 Input prices
 Technology levels
 Expectations
 Transport costs
 Storage capacity
 Law of supply
Law of Supply: Other things remaining the same (ceteris paribus or assumed to be constant)
“When price of a commodity increases, its quantity supplied (qs) also expands and when
Price of a commodity decreases its quantity supplied (qs) also contracts” or There is a
Positive relationship between Price and quantity supplied
28
Reason for positive relationship between price and Supply: When Price increase Profits tend to
increase therefore suppliers increase supply because they get incentive to sell and when Prices
decrease Profit margins tend to decline therefore the incentive to sell diminishes and suppliers
tend to decrease supply. The quantity supplied in the market depends upon those factors that
determine quantity supplied by individual sellers while Profit is the only motive to supply
goods and services in the market
Movement on the Supply curve is due to change in Price, while shift of the Supply Curve is due
to change in other factors
29
Market Price
Price
Demand Price is the expectation of the consumer from the market signifying the consumer’s
surplus. Supply Price is the expectation of the Sellers from the market signifying the Producers
surplus.
Market Equilibrium and Price
Market equilibrium is a point at which the demand and supply curves intersect. The prices of the
two curves cross and therefore this is the Market equilibrium Price for a good or service. Market
price is only and only determined by the equilibrium (intersection) of the forces of market
demand and market supply
Market Prices is the realization of expectations of buyers and sellers from the Market.
Market Prices reflect both the value of a good to the society as well as the cost to the society of
producing that good. Bothe households and firms look at prices when deciding to buy and sell.
They unknowingly take into account the social benefits and social costs of their actions , and
therefore by trying to maximize their own welfare, they maximize the welfare of the society
Market Price and equilibrium
Price (P)
Price increases when demand increases and price decreases when demand decreases, with supply
remaining constant
Price (P)
Price increases when supply decreases and price decreases when supply increases decreases,
with demand remaining constant
Price (P)
30
When Demand is greater than Supply or when supply is less than demand = Price increases
When Demand is less than supply or when supply is more than demand = Price decreases
Market equilibrium is the sum of consumer surplus and producer’s surplus as shown by the
demand and supply curves.
Market equilibrium also shows the economic efficiency or efficiently allocation of resources
among producers and buyers through the price mechanism
At the point of Market Price, The market Clears itself = Nothing will be sold after this point
How Prices allocate Resources
Market Forces harness the forces of supply and demand to efficiently allocate resources and
determination of Prices of goods and services as well as Prices in turn signal and guide the
allocation of resources efficiently towards production of commodities that are demanded more
away from commodities that are demanded less in an economy
Markets are usually efficient. Market economy is a system through which resources are allocated
and decisions are decentralized through many firms and households as they interact in the market
for goods and services and factors of production (resources). Markets work through the
“invisible hand of self-interest”. Increase in Demand induces Price to rise while supply increase
when prices are high. For increase in supply , production has to increase, Increase in production
in turn needs higher demand of factors of production, thus increasing the price of factors in the
market and forcing the movement of these factors (resources from less paid jobs to higher paid
jobs) and efficiently re-allocating resources through the Price system of the market, and
increasing the incomes of the factors in the long run, which in turn also influences an increase in
consumptions and saving patterns in the economy. Thus increasing the efficiency of the economy
through the market (Price) system
Market failure
Market failure occurs when the Market fails to be efficient because there is restraint on market
demand, market supply or Market Price. Market Failure occurs when: People are too poor to buy
efficiently at market Price (Demand Restraints). Suppliers are too inefficient to sell quality and
cost-effective products on the Market. When Monopolies are formed and Free Competition is
restricted and when Government intervenes and creates Market inefficiencies through its
regulations and activities. When Market fails Government plays its role to give equity. And when
government fails market plays its role to give efficiency in the economy.
Efficiency vs. Equity
Efficiency refers to the size of the economy that distributes scarce resources through the Market
system of demand and supply called Price (P) Mechanism and allocates them from areas where
these resources are less demanded to areas where they are demanded more therefore Priced
higher. Equity refers to the distribution of economic prosperity fairly (judiciously) among all the
members of the society through some form of Public (govt.) intervention
Consumer surplus
31
Consumer surplus = a buyers willingness to pay minus the amount the buyer actually pays
Consumer surplus measures the benefit to buyers of participating in a market. When the price
falls the quantity demanded rises and the consumer surplus rises. The increase in surplus rises,
because the existing consumer now pays less and in part because new consumer enter the market
at a lower price and vive versa. In most markets consumer surplus reflects economic wellbeing
Producer Surplus
Producer’s surplus is the amount a seller is paid for a good minus the seller’s costs
When price rises, the quantity supplied increases, the producer’s surplus rises. The increase in
producers surplus occurs in part because the existing producers now receive more and in parts
because new producers enter the market at a higher price levels. In most markets producer
surplus also reflects economic wellbeing
Increase and decrease in market Prices
 Price increases when demand is more than supply or supply is less than demand because
buyers bid more to attain whatever commodities are in the market and push the price up
 Price decreases when demand is less than supply or supply is more than demand Because
the sellers try to sell off more of their stock by lowering their supply prices thus pushing the
market price down
32
 Consumer Surplus and Producers surplus
THEORY OF CONSUMER BEHAVIOUR
 Concept Of Indifference Curves And Budget Constraint
(https://www.youtube.com/watch?v=P_N2hr9aMow)
 Consumer Equilibrium Condition
 Income Effect, Price Effect And Substitution Effect
Indifference Curves (ICC) Analysis
Indifference Curves are curves that show the substitution effect of the consumer’s behavior from
a set of two commodities x and y. The curves are called Indifferent Curves because the consumer
is INDIFFERENT at any set of the two commodities, because he or she likes them equally
Assumption: The consumer is rational and likes both the commodities equally. Therefore by
using (buying or consuming) more of one commodity, the consumer has to forgo (leave) the use
of the other commodity and vice versa which he or she does not want to forgo one for the other
ICC’s are a MAP of closely knit curves that incline towards infinity and are CONVEX to
the origin. Higher the ICC, greater is the satisfaction of the consumer from a set of two
commodities. Lower the ICC, lower is the satisfaction of the consumer from a set of two
commodities. On all points of the same ICC the satisfaction of the consumer is the same
from any set of the two commodities x and y.
While all consumers have different tastes, habits, likes and dislikes about one or the other goods,
and at the same time some goods are preferred more above other goods, we say the each
consumer has a scale of preferences in his or her's unlimited wants. Indifferent would literally
mean lacking any preference, therefore the economists assume that the consumer is indifferent
between combinations of two sets of different or alike commodities. In other words the consumer
33
has no preference between two commodities. This is shown by the development of the
indifference curve analysis in order to explain the theory of consumer’s choice. The indifference
curve theory is meant to replace the utility analysis for showing the consumers choices of one
commodity over another commodity, but both these analysis show the same results. The
assumption to the preference theory is that always in normal conditions, the consumer will prefer
more to less.
Indifferent curve: an indifferent curve shows all combinations of goods that a consumer will use
or buy in order to derive equal satisfaction from these goods. If the total utility or satisfaction
derived from different combinations of two goods are equal for the consumer, than it is said that
the consumer will be indifferent to all these sets of the same two commodities. In other words,
the consumer will derive the same satisfaction on all points of the same indifference curve. But,
if the consumer will try to derive greater satisfaction or total utility from different sets of the two
same commodities, than he or she will have to increase the amount of use of both these
commodities, therefore they can not remain on the same indifference curve, rather will move up
to a higher indifference curve to measure the increase in satisfaction of their consumption of
different sets of the same two commodities; and vice versa.
Characteristics of an indifference curve:
a) Slope of an indifference curve: an indifference curve is down wards sloping curve from left to
right. This indicates that when the consumption of a commodity is decreased, than only the
consumption of another commodity can be increased. The condition to the down ward slope or
steepness of an indifference curve is than every time the consumer has to make a choice between
commodities, than he or she will prefer more to less only.
i) If an indifference curve was a vertical straight line, or having a vertical slope, than it would
violate the condition that more is preferred to less.
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ii) If it was a horizontal straight line, , than again it would violate the condition that more is
preferred to less.
iii) And if it was a upward sloping straight line, , than again this condition of more is preferred to
less will be violated, therefore an indifference curve cannot be a vertical, horizontal or upward
sloping curves, but can only be down wards sloping curves.
If we draw Raul's scales of preferences and assume that he has to choose between ice cream and
chocolates, than as he prefers more to less, the slope of his indifference curve will be a down
wards curve, because if he prefers more of the ice creams than he would have to eat less
chocolates; and if he wants to eat more chocolates, than he would have to eat less ice cream, as
illustrated on the following figures:
In above x-axis show Raul's preferences for chocolates and on y-axis his preferences for ice
cream are shown. We see that as he increases the consumption of chocolates, for each extra unit
of chocolates he has to forego some units of ice cream and vice versa, therefore the slope of
Raul's indifference curve is down ward from left to right, which is in accordance to the
assumption that he would prefer more to less while substituting one commodity for the other
from his set of preferred commodities.
If Raul is consuming more ice creams, when he is not ready to decrease the amount of chocolates
that he is eating, therefore the indifference curve is a vertical straight line, but this is wrong,
because he should leave one for the other and prefer more to less.
If Raul is consuming more of chocolates, when he is not ready to decrease the amount of ice
creams that he is eating, therefore the indifference curve is a horizontals straight line, but this is
wrong, because he should leave one for the other and prefer more to less.
If Raul is trying to eat more of both ice creams and chocolates, therefore the indifference curve is
an upward sloping straight line, but this is wrong, because he should leave one for the other and
prefer more to less.
Shape of an indifference curve: an indifference curve is convex to the origin, because of
diminishing rate of substitution. It is also called a bowed in indifference curve.
(a) The indifference curve is a down ward sloping and
(b) The indifference is Concave to the origin
c) Intersection of two indifference curves: two indifference curves do not intersect each other
And is convex to the origin.
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 ICC are Down Ward Sloping: because the increase in use of one commodity x or y
results in decrease in the use of the other commodity y or x, therefore ICC is a downward sloping
curve
An upward sloping curve, increase in one commodity does not result in decrease in the use of the
other commodity therefore does not satisfy the definition of the ICC
With parallel to horizontal or vertical axis curves the increase in one commodity does not result
in decrease in the use of the other commodity therefore does not satisfy the definition of the ICC
MRS = ∆X / ∆Y
Where MRS = Marginal Rate of Substitution
∆ = Rate of Change
X & Y = commodities
Indifference Curves are CONVEX to the Origin Curves: Because the consumer jealously
likes both the commodities, he or she would decrease the decrease of the use of one of the
commodities till the rate of decrease is zero and he or she can not substitute any more
With a straight line, the rate of decreases is constant. With a Concave curve the rate of decrease
increases. The Rate of Decrease should Decrease as in Convex to origin curve
Slope of the Curve is MUx /MUy or Marginal Utility of X / Marginal Utility of y
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Two ICC’s do not Intersect each other : They are parallel to each other At point B the two curves
intersect, therefore there is same satisfaction on ICC1 and ICC2 which is not part of our
definition Point A on ICC2 is below point B of ICC1 and Point C on ICC2 is above point B on
ICC1, therefore they have different satisfaction levels and can not be on the same ICC
An indifference map: indicates the consumer’s preference among all combinations of goods and
services. The higher one goes on an indifference curve, the greater is the satisfaction that the
consumer will derive from different sets of the same two commodities. "An indifference map,
located in the positive quadrant of a graph, indicates the consumer’s preferences among all
combinations of goods and services. The further from the origin an indifference curve is, the
more the combination of goods along that curve are preferred". The indifference map reveals
only the conditions of goods and services that a consumer prefers or is indifferent to and what he
or she are willing to buy.
Derivation of a Demand Curve: A demand curve of the consumer of one or the other
commodity can be derived from the indifference curves and the budget lines by changing the
price of one of the goods, when the price of the other commodity and every other thing remains
the same, this will give the consumer’s equilibrium points on different indifference curves, when
the shift of the budget line will become tangent to a new indifference curve. If we plot lines
falling from the different equilibrium points on different indifference curves to a separate graph
below the x-axis for commodity A; or next to y-axis for commodity B, we will derive the
consumer’s demand curve for that particular commodity at different price levels on the
subsequent graphs
In Raul's Demand curve for chocolates has been plotted out of his equilibrium points on different
indifference curves when the price of chocolates changed from $ 2 to $ 3 per piece. When the
price of chocolates was $ 2 per piece, Raul's demand for chocolate was 2.5 pieces, the
equilibrium point E on IC2 from where a line has been dropped to the graph below the x-axis
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showing both quantity and price at point C; with an increase in price of chocolates to $ 3 and the
price of ice cream as well as his daily allowance remaining the same, Raul's demand for
chocolates decreased to 2 pieces, thus the shift of the budget line from MN to MN1, and the
equilibrium point to E1 on IC1 from where line has been dropped to the graph below the x-axis
showing both quantity and price at point D. Joining points C and D we derive Raul's demand
curve for chocolates.
Similarly Raul's Demand curve for Ice cream has been plotted out of his equilibrium points on
different indifference curves when the price of ice cream changed from $ 2.5 to $ 3.5 per piece.
When the price of ice cream was $ 2.5 per piece, Raul's demand for ice cream was 2 ice creams,
the equilibrium point E on IC2 from where a line has been dropped to the graph next to the y-
axis showing both quantity and price at point F; with an increase in price of ice cream to $ 3.5
and the price of chocolates as well as his daily allowance remaining the same, Raul's demand for
ice cream decreased to 1.4 ice creams, thus the shift of the budget line from MN to MN1, and the
equilibrium point to E1 on IC1 from where line has been dropped to the graph next to the y-axis
showing both quantity and price at point G. Joining points F and G we derive Raul's demand
curve for ice cream
Budget Constraint & Consumer’s Equilibrium Condition
Budget Constraint: An Indifference map can tell us what a consumer is willing to buy, but it
cannot tell us what he or she is able to buy. What a consumer is able to buy will be determined
from the extent of his or her's income levels as well as the market price of both the commodities.
The income of the consumer will determine their buying power in money terms, while the prices
of both the commodities will ensure the extent of that buying power in real terms. Both the
income constraints and the price constraints together constitute the budget constraints for the
consumers and that is shown by the income-price or the Budget Line.
The Budget Line is a line showing all combinations of goods that can be purchased with a given
level of income and existing prices in the market.
If Raul's Budget line (income - Price Line) is shown, when his total income is $ 10 a day and he
spends it on ice cream and chocolates, when the market price of ice cream is $ 2.5 a piece, and
the market price of chocolates is $ 2 a piece. Anywhere along the budget line Raul is spending $
10 on the commodities of his choice, and can choose among several different combinations of ice
cream and chocolates which can add up to $ 10 at their respective prices.
For example: Raul can choose, between a combination of Ice cream and chocolates, when price
of Ice cream is $ 2.5 per scoop and price of Chocolates is $ 2 per piece. Raul's total allowance is
$ 10 per day:
Ice creams (Scoops) and Chocolates (Pieces)
Combinations Quantity Quantity
A 4 0
B 3 1
C 2 2.5
D 1 3.75
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E 0 5
A change in the consumer’s income will bring a change in his or her's buying power, therefore
the budget line will shift proportionately positive to the change in the consumer’s income levels
(See chapter 6).
A change in price of one or the other commodity will also bring about a change in the buying
power of the consumer, therefore with the change in market prices of the commodities will
induce the budget line to shift proportionately negative to the change in price of one or the other
commodity (See chapter 6).
Budget Line (income-Price Line)
Budget line is the RESTRAINT to the Maximization of Satisfaction levels of the consumer. The
restraint is the Income levels of the consumer and the prices of both the commodities x and y in
the market or the DEMAND Curve of the consumer
Slope of the Budget line = Px / Py

Equilibrium Levels of The Consumer
Equilibrium Level (Optimum Level) is the point of TANGENCY between the Budget line and
the Highest possible Indifference Curve
MUx / MUy = Px / Py
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At the point of Tangency the slopes of the two curves are equal. The Tangency between the two
curves is a necessary condition for the equilibrium. This tangency should be at the point of the
Convexity of the IC curve is a secondary condition. Which means that the rate of change
between the two commodities should be zero
Consumer’s Equilibrium Condition: If we place the consumer’s budget line MN on his or her's
indifference map, we will derive his or her's equilibrium condition. A consumer is in equilibrium
when his or her's budget line is tangent to the highest possible indifference curve. This will allow
us to determine the one combination of both the goods and services that the consumer is willing
and at the same time is able to buy, given his or her's budget constraints. (See fig. 5.2). The
consumer maximizes his or her's satisfaction by purchasing the combination of ice cream and
chocolates that is on the indifference curve furthers from the origin but attainable, because they
are within the consumer’s budget line margin.
Raul's budget line MN is tangent to his indifference curve 2 at point E which is his equilibrium
condition, or the point where he can attain maximum satisfaction from buying and consuming a
combination of 2 ice creams and 2.5 pieces of chocolates with his $ 10 a day allowance.
Raul's budget line also intersects point's A and B on indifference curve 1, but both these points
are at a lower indifference curves where his satisfaction is lesser than on an higher indifference
curve 2, the assumption is that he will prefer more to less. Also the budget line is intersecting and
not tangent to points A and B, therefore the consumer is not in equilibrium at these points.
Raul can derive more satisfaction from both these commodities at indifference curve 3, but he
cannot attain or buy these commodities at a higher indifference curve than the indifference curve
2, because of his budget constraints shown by his budget line MN which are $ 10 and can only
become tangent to IC2 at point E which is his equilibrium condition in our model.
Income Effect, Price Effect & Substitution Effect.
Income Effect: An increase in the consumer’s income would subsequently increase his or her's
buying power, therefore their budget line would shift outward and the consumer’s equilibrium
would shift from point E2 on IC2 to point E3 on IC3; while a decrease in the consumer’s income
would subsequently decrease his or her's buying power, therefore their budget line would shift
inwards and the consumer’s equilibrium would shift from point E2 on IC2 to point E1 on IC1.
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(See fig. 6.1). If all the equilibrium points E1, E2, and E3 on IC1, IC2, and IC3 are joined
together with the origin O, then we derive the Income Consumption Curve or the ICC which
shows us the elasticity of demand of the consumer for both the commodities.
If Raul’s income has increased from $ 8 to $ 10 to $ 12 per day, than Raul's budget line MN
would shift from MN1, showing his equilibrium E1 on IC1 to MN2, showing his equilibrium
point E2 on IC2 to MN3, and showing his equilibrium point E3 on IC3. Joining points E1, E2
and E3 to the origin gives us Raul's Income Consumption Curve (ICC) showing his elasticity of
demand for both the commodities.
1. Income Effect
Income Effect shows the change in Consumers satisfaction levels due to change in his or her
income levels
Higher Income will shift Budget line to the right, Lower income will shift budget line to the left.
Higher tangency on Higher ICC will give higher satisfaction levels. Lower Tangency on lower
ICC will give lower satisfaction levels to the consumer. When Income Changes the Budget line
(Demand Curve) shifts to the right when income increases, and shifts to the left when income
decreases. The consumer’s equilibrium changes. Higher the income levels, higher the satisfaction
of the consumer. Lower the income levels, lower the satisfaction of the consumer
2. Price Effect
When price of x commodity changes, while Price of y commodity remains constant or vice
versa. If Price increases, demand curve shifts to the left, if Price decreases, demand curve shifts
to the right. The Pivot is at the point where there is no change in Price. The PCC measures the
Elasticity of Demand for x commodity due to change in Price. Therefore under the Price effect
the Pivot is at a point where Price of the commodity did not change, and demand did not
change.
3. Substitution Effect
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Substitution effect measures the change in consumer’s equilibrium (satisfaction levels) when the
price of x changes, but the demand of x does not change, therefore the demand of y changes, and
vice versa Pivot is at the point where Price changes, but demand does not change Therefore
under the substitution effect the Pivot is at a point where Price of the commodity changed,
but demand did not change.
PIVOT
PIVOT

 Price Elasticity Of Demand (https://www.youtube.com/watch?v=HHcblIxiAAk)
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 Price Elasticity Formula
 Midpoint Formula
 Graphic Analysis And Total Revenue Tests
 Determinants Of Elasticity
 Cross Elasticity
 Income Elasticity Of Demand
 Point elasticity of Demand and Ark elasticity of Demand
 Price Elasticity Of Supply
Elasticity of Demand & supply
Elasticity Of Demand
Price Elasticity of Demand: the percentage change in the quantity demanded of a commodity,
divided by the percentage change in its price is called price elasticity of demand. Or
Percentage change in quantity demanded of a product

Ed = ___________________________________________________
Percentage change in the price of that product
The price elasticity of demand can be greater that one; equal than one and less than one.
 If Ed > 1, than demand is elastic, or with a one percent increase in price, the quantity
demanded declines with more than one percent.
Example 3.1: If with price of chocolates increasing from $ 1 to $ 2 per chocolate, the quantity of
chocolates demanded decline from 20 chocolates per day to 5 chocolates per day, it is said that
Ed > 1.
 If Ed = 1, than demand is uni-elastic, or with one percent increase in price, the quantity
demanded also declines with one percent,
Example 3.2: If with price of chocolates increasing from $ 1 to $ 2 per chocolate, the quantity of
Ed = 1.
 If Ed < 1, than demand is inelastic, or with one percent increase in price, the quantity
demanded declines with less than one percent.
Example: If with price of chocolates increasing from $ 1 to $ 2 per chocolate, the quantity of
Ed < 1.
Negativity of Price elasticity of demand: because there is an inverse relationship between price
and quantity demanded, therefore the price elasticity of demand is always negative.
Formula for price elasticity of demand: price elasticity of demand can be calculated from the
following formula:
Q2 - Q1 / Q2 + Q1
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Ed = _________________
P2 - P1 / P2 + P1
Where:
Ed is the elasticity of demand;
P1 is the initial price of a commodity;
P2 is the change in the price of the commodity
Q1 is the initial quantity demanded of that commodity;
Q2 is the change in quantity demanded due to a change in the price of that commodity.
Calculation of Example 3.1 by this formula would give us:
5 - 20 / 5 + 20 - 15/25
Ed = _______________= _______ = (-) 15/25 X 3/1
2 - 1 / 2 + 1 1/3
Ed = (-) 45/15 = (-) 3, or the Ed > 1.
10 - 20 / 10 + 20 - 10/30
Ed = _______________= _______ = (-) 10/30 X 3/1
2 - 1 / 2 + 1 1/3
Ed = (-) 1/3 X 3/1 = (-) 1, or the Ed = 1.
15 - 20 / 15 + 20 - 5/35
Ed = _______________= _______ = (-) 5/35 X 3/1
2 - 1 / 2 + 1 1/3
Ed = (-) 15/35 = (-) 0.42, or the Ed < 1.
Note: the answer to the elasticity of demand would always come in a minus, which only shows
the negative slope of the demand curve, or the inverse relationship of quantity demanded to price
of the commodity and should be placed in the brackets for the answer to become greater than
one, equal to one or less than one.
Slopes of the demand curve showing its elasticity, when the demand curve is a straight line:
Elasticity of demand is greater than one: derived from the example 3.1, i.e. when P1 = 1, Q1 =
20; and when P2 = 2, Q2 = 5: the demand curve is derived showing that the elasticity of demand
as greater than one; notice that the slope of the demand curve is very flat, where Ed > 1.
Elasticity of demand equal to one: derived from the example 3.2, i.e. when P1 = 1, Q1 = 20; and
when P2 = 2, Q2 = 10: If the demand curve is derived showing that the elasticity of demand as
equal to one; notice that the slope of the demand curve if extended to the x-axis and the y-axis
makes the hypotheses triangle and cuts both these axis's at 45 degrees each, where Ed = 1.
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Elasticity of demand smaller than one: derived from the example 3.3, i.e. when P1 = 1, Q1 = 20;
and when P2 = 2, Q2 = 15: the demand curve is derived showing that the elasticity of demand as
less than one; notice that the slope of the demand curve is very steep, where Ed < 1.
When elasticity of demand is infinity: the demand curve is perfectly elastic and at the price
remaining constant, quantity demanded changes rapidly, making the demand curve a straight line
parallel to the x-axis where the Ed would be infinite. This is a case where there are so many
suppliers, that the consumer would not purchase their commodities from one particular supplier.
When elasticity of demand is zero: shows that the demand curve in perfectly inelastic, and
whatever the change in price the quantity demanded remains the same, making the demand curve
a straight line parallel to the y-axis where Ed is zero. This is the case of a drug addict who has to
get his or her's fix whatever the price of drugs.
Point Elasticity of Demand: If the demand curve is given as a straight line, and the elasticity of
demand has to be estimated on different points of that given demand curve than the following
formula is used:
dQ/Q
Ed = _____or Ed = dQ/Q X P/dP
dP/P
Where: Q is the old quantity demanded;
dQ is the derivative change in quantity demanded;
P is the old price;
dP is the derivative change in price.
Point Ed: A straight line demand curve has been given with points A, B and C, where elasticity
of demand has to be calculated:
if the demand curve is extended on both sides to intersect x and y axis's at M and N, than
according to the formula, Ed = dQ/Q X P/dP:
(a) at point B on that demand curve the elasticity of demand is equal to one, when MB = BN or
MB / BN, Ed = 1;
while at point A on that demand curve the elasticity of demand is less than one, or
MA / AN, Ed < 1;
and at point C on that demand curve the elasticity of demand is greater than one, or
MC / CN, Ed > 1.
Arc Elasticity of Demand: the elasticity obtained when the midpoint or average price and
quantity are used is often called arc elasticity, and because of the value of the price elasticity of
demand varies depending upon the base, average price and average quantity demanded is
calculated to determine the elasticity. When the demand curve is not a straight line and is an arc
or a curve, and in order to measure elasticity of demand on point A, B and C on that demand
curve, one has simply to draw a tangent MN to the point in the arc and then measure the
elasticity of that point as on the demand curve being a straight line.
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If the demand curve is an arc, where when a tangent M1N1 is drawn, the slope of the tangent or
calculation with the formula Ed = dQ/Q X P/dP, shows us that the Elasticity of demand on point
A is less than one; on point B the slope of the tangent MN shows us that the elasticity of demand
is equal to one; and on point C the slope of the tangent M2N2 shows us that the elasticity of
demand is greater than one.
Elasticity measures the responsiveness of quantity demanded and quantity supplied to a unit
change in Price
Price elasticity of demand measures how much quantity demanded will respond to a unit change
in Price Ed = ∆qd/∆P x P/q
Price elasticity of supply measures how much quantity supplied will respond to a unit change in
Price Es = ∆qs/∆P x P/q
Income and Cross elasticity of demand
Income elasticity of demand measures how much quantity demanded responds to a unit change
in income of a consumer.
Ed = ∆qd/∆Y x Y/q
Cross Elasticity of demand measures how much quantity demanded of good x responds to a
percentage change in the price of good y
Ed = ∆qdx/∆Py x Py/qx
Measurement of Elasticity
 Uni-elastic or Price elasticity = 1: with a percentage change in Price the reciprocal
percentage change in quantity is equal to the change in Price
 Elastic or Price elasticity > 1: with a percentage change in Price the reciprocal
percentage change in quantity is more than the change in Price
 Inelastic or Price elasticity < 1: with a percentage change in Price the reciprocal
percentage change in quantity is less than the change in Price
 Zero Elasticity or Price elasticity = 0: with a percentage change in Price there is no
change in quantity
 Infinite elasticity or Price elasticity = > 1: with no change in Price there is a large
change in quantity
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A B A
B
C
C
Applications of Supply, Demand and Elasticity

Elasticity of supply can be very high at low levels of quantity supplied and very low at high
levels of quantity supplied and determines whether supply curve is steep or flat.
In the short run The demand for basic foodstuffs is usually inelastic because they are basic
goods and have few substitutes (page no. Demand for wheat is inelastic). The demand for petrol
is inelastic because buying habits do not respond to immediate change in Prices of petrol.
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Demand for drugs is inelastic therefore drug ban usually increases prices and also drug related
crime
Normal, inferior, complementary, substitute and Giffon goods
 Normal goods are goods for which, other things being equal, an increase in income leads
to an increase in quantity demanded
 Inferior goods are goods for which, other things being equal, an increase in income leads
to a decrease in quantity demanded
 Complementary goods are two goods for which a decrease in prices of one good leads
to an increase in demand for the other good and vice versa
 Substitutes are two goods for which a decrease in the prices of one good leads to
decrease in in the demand for the other good and vice versa
 Giffon goods: are goods who’s demand does not change with increase in prices for very
poor people, because they are commodities that give nourishment when all other goods are out of
reach of the poor


 Economies of Public Sector and Externalities Supply, Demand & Government Policies
 Inequality, Income and poverty - questions of Equity vs Efficiency
Mid Term Exam

THEORY OF PRODUCTION AND COST
 Introduction To Traditional Cost Curves (https://www.youtube.com/watch?
v=ucJBO9UTmwo)
 Long Run Costs And Economies / Diseconomies Of Scale
(https://www.youtube.com/watch?v=JdCgu1sOPDo)
Production Function & Factors of Production & Costs of Production
A Country’s standard of Living depends on its ability to produce more goods and Services.
Difference of living standards around the world are staggering and Changes in living standards
over time is also large. This is attributed to Productivity
each hour of work time with different set of capital and labor inputs (resources). Growth rate of
a country’s national productivity determines the country’s national employment levels (GDP)
and the country’s national income levels (GDP). Productivity is the primary determinant of the
living standard of each individual and household, and thus of the society. Productivity comes
from skill enhancement of the individual and the capacity of the individual to work with modern
machines and technology. This capacity (skill enhancement or productivity) is enhanced by
improving the standard of scientific and vocational education at all levels – primary to
professional To enhance standard of living, Policy makers need to raise productivity by ensuring
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that workers are well educated and have the tools (technology) needed to produce more, better
and cheaper goods and services
Production: Production is an ongoing process, whereby Human Resource (Labor &
Entrepreneur) interacts on Natural Resource (Land) through Man-Made Resource (Capital) in
order to change the place, shape or utility of the resource (Value Addition) for greater human
satisfaction. Production changes inputs into outputs
Production Function: Production function is the relationship between quantity of inputs used
to make a good or service and the quantity of output of that good or service. Marginal product is
the increase in output that arises from an additional unit of input (Value Addition). Diminishing
marginal product is the property whereby the marginal product of an input (Output) declines as
the quantity of the input increases
Price of factors of production is the private Cost of Production (inputs) which comes from prices
of prices of factors of production paid by the producers (Entrepreneur) or owner of the firm
producing goods and services. Price of Land is called Rent. Price of Labor is called Wages.
Price of Capital is called Interest and Price of Entrepreneur (Organization) is called Nominal
Profits
MSC = MSB
Marginal social Costs = marginal Social Benefits
1. Characteristics of Factors of Production
Characteristics of Land: Land is a Natural Resource and Land is gift of nature. All things in the
land, on the land and over the land, attached to the land as gift of nature including soil, forests,
lakes, rivers, water bodies, biodiversity (life on Earth = micro-organisms; insects, creepy
crawlies; animals; birds; reptiles; mammals; fishes; marine life etc.), air, atmosphere, ozone etc.
is called land in Economics. Land is Free, there is no supply price, only demand price. Higher
the demand, higher the price of land, lower the demand, lower the price of land. Price of Use of
Land is called Rent. Land is passive factor of production in Industry and active factor of
production in Agriculture. No two pieces of land have the same productivity
2. Characteristics of Labor (N): Marginal Productivity (MP) of Labor (N). Labor is a
Human Resource. Labor is quality of a human being to produce for an income. Labor (N) is
demanded on its marginal productivity (MP). Higher the productivity, higher the price of Labor.
Supply of labor is a backward bending curve. Labor is not homogenous: there are unskilled,
semi-skilled, skilled, highly skilled, intelligent as well as lazy labor. Productivity of each
category of labor is different; as is different at different times of the day of the same laborer.
MPN is enhanced through, skill training, education, division of labor and specialization. Food,
nourishment, health as well as leisure hours and good work environment enhance productivity of
labor
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3. Characteristics of Capital (K): Capital is a man- made resource. Capital enhances the
productivity of labor by saving time or by producing more in less labor hours Capital is of Two
types: Working Capital or raw materials which are worked upon, energy resource, and money.
Working Capital increase when production increases and decrease when production decreases
and are zero when production is zero and Fixed Capital (Catalytic Agent) which help change
place, shape or utility of a raw material but does not change in the short run. They include
machines, infrastructure, tools, equipment and technology. Fixed Capital does not increase when
production increases, does not decrease when production decreases and remains constant even
when production is zero in the short run time period
4. Characteristics of Entrepreneur (Risk Taker)
Entrepreneur Decides as Head of the Firm: Decides What to Produce = depending upon profit
margins of the product (difference between costs of production and Market Price). Decides How
to Produce = (Capital ratio Labor). More of K and less of N or less of K and more of N etc.
Decides Where to Produce = near the market of finished products or near the factor market.
Decides for Whom to Produce = (For the rich consumer market or the general public consumer
market or for the industry producing producers or intermediate goods or services / for local or
international markets). Decides When to Produce = when there is a slump in the market (low
demand) or when there is glut in the market (high supply) or when there is high demand and low
supply etc. Decides How Much To Produce = to match the market demand or to produce less
than the market demand depending on the productive capacity of the firm
Tasks of Entrepreneur as an Organizer: Hires or buys other Factors of Production (Supply
Chain Management = Backward Linkages). Oversees the Productive Process (Quality &
Quantity Control Management = Organizational Behaviors). Ensures Final Sale of the Product =
Marketing and Sales Contracts = Forward Linkages)
Note: In Small or Medium Business (SME) all the above functions (decisions & Tasks) are
performed by an Entrepreneur (Single Proprietor or in partnership) = Owner who is the Risk
taker. In Large Public and Private Corporations or Multinational Organizations (MNC’s) these
functions are performed by Managers and the Risk Taking is transferred to the Tax payer (in
Public Sector) and to the Stock Holder who is the Owner & Risk Taker (in Private Sector)
Corporations and Organizations.
Types of Costs of Production
 Explicit Costs = Private Costs that can be easily calculated
 Implicit Costs = Private Costs that are unseen or can not be easily calculated
 Internal Costs = Private Costs of Inputs (Factors of Production) paid by the Firm or
producer (implicit + Explicit Costs)
 External Costs = Costs not paid by the Firm but incurred by the Government or the
community due to the production process of the firm = Environmental Costs
 Opportunity Costs = Cost of an Opportunity measured in benefits of Opportunities not
availed
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Fixed and Variable Cost: Fixed Costs do no vary with the quantity of output produced and are
usually incurred before the production process (are Risk of the Firm) and Variable costs vary
with the quantity of output produced and usually are incurred with the production process
Total costs (TC)
Formulas to Calculate Costs

 TC = Total Costs = TFC + TVC
 (Total Costs = Total Fixed Costs + Total Variable Cots)
 AC (Average Costs) = TC / Q
 AC = TC / Q or
 AC = TFC + TVC / Q or
 AC = TFC/ Q + TVC/ Q
 AFC = TFC/q and AVC = TVC/q
 (Total Costs divided by quantity of output)
 MC = MC = ∆TC / ∆Q
 (Marginal Costs = change in Total Costs divided by change in quantity)
 TFC divided by q of output will give us a down ward sloping AFC curve from A’ to B’
 TVC divided by q of output will give us an upward sloping AVC curve from A’’ to B’’
 AFC + AVC will give us a U shaped AC Curve from AEB
51
Reason for AC to be U shaped: AC curve falls from A to E because AFC curve is falling
steeply from A’ to E’ and although AVC is rising from A” to E’, it is rising slowly and therefore
falls below AFC curve. AC curve is an upward sloping curve from E to B because from E’ to B”
AVC is rising steeply and although AFC is still falling from E’ to B’, it is falling slowly and AFC
falls below AVC curve. Point E on AC curve is the lowest point, because at point E’ AFC = AVC
Least Cost Position
MC = AC
Marginal Costs = Average Costs
Least Cost point of the Firm when AC = MC

MC curve (Marginal Cost Curve) shows the rate of change in total Costs (TC). MC Curve is also
a U shaped Curve. When AC is falling, MC is also falling but at a lesser rate, therefore MC curve
falls below AC curve. When AC is rising, MC is also rising, but at a faster rate than AC,
52
therefore MC curve lies above AC curve. At point E the lowest point on AC curve, MC = AC
therefore this point E is the least cost point of the firm. Before point E Costs are falling, therefore
profits should rise. After point E costs are rising, therefore profits should decrease. It is advised
that the firm produces at point E where
MC = AC
Long Term Average Costs Curves:
The Classical View: When there is no change in technology and fixed costs, than when we join
least cost points of different years, we derive the LACC (Long Term Average Cost Curve
The Modern View of LACC. In the long run Technologies will change, new and better
machines as well as more productive labor will be used, there will be economies of scale,
therefore LACC will be a down wards sloping curve, because there would be reduction in long
term average costs
53
 Law Of Variable Proportions (https://www.youtube.com/watch?v=YK8Cx0_E7LQ)
 Concept Of Iso-Quants And Iso-Cost Line (https://www.youtube.com/watch?
v=sj27WFj_ckM)
 Producers Equilibrium
 Output Maximization And Cost Minimization
Production Function & Factors of Production
A Country’s standard of Living depends on its ability to produce more goods and Services.
Difference of living standards around the world are staggering and Changes in living standards
over time is also large. This is attributed to Productivity
each hour of work time with different set of capital and labor inputs (resources). Growth rate of
a country’s national productivity determines the country’s national employment levels (GDP)
and the country’s national income levels (GDP). Productivity is the primary determinant of the
living standard of each individual and household, and thus of the society. Productivity comes
from skill enhancement of the individual and the capacity of the individual to work with modern
machines and technology. This capacity (skill enhancement or productivity) is enhanced by
improving the standard of scientific and vocational education at all levels – primary to
professional To enhance standard of living, Policy makers need to raise productivity by ensuring
that workers are well educated and have the tools (technology) needed to produce more, better
and cheaper goods and services
Production: Production is an ongoing process, whereby Human Resource (Labor &
Entrepreneur) interacts on Natural Resource (Land) through Man-Made Resource (Capital) in
order to change the place, shape or utility of the resource (Value Addition) for greater human
satisfaction. Production changes inputs into outputs
Production Function: Production function is the relationship between quantity of inputs used
to make a good or service and the quantity of output of that good or service. Marginal product is
the increase in output that arises from an additional unit of input (Value Addition). Diminishing
marginal product is the property whereby the marginal product of an input (Output) declines as
the quantity of the input increases
Price of factors of production is the private Cost of Production (inputs) which comes from prices
of prices of factors of production paid by the producers (Entrepreneur) or owner of the firm
producing goods and services. Price of Land is called Rent. Price of Labor is called Wages.
Price of Capital is called Interest and Price of Entrepreneur (Organization) is called Nominal
Profits
MSC = MSB
Marginal social Costs = marginal Social Benefits
54
5. Characteristics of Factors of Production
Characteristics of Land: Land is a Natural Resource and Land is gift of nature. All things in the
land, on the land and over the land, attached to the land as gift of nature including soil, forests,
lakes, rivers, water bodies, biodiversity (life on Earth = micro-organisms; insects, creepy
crawlies; animals; birds; reptiles; mammals; fishes; marine life etc.), air, atmosphere, ozone etc.
is called land in Economics. Land is Free, there is no supply price, only demand price. Higher
the demand, higher the price of land, lower the demand, lower the price of land. Price of Use of
Land is called Rent. Land is passive factor of production in Industry and active factor of
production in Agriculture. No two pieces of land have the same productivity
6. Characteristics of Labor (N): Marginal Productivity (MP) of Labor (N). Labor is a
Human Resource. Labor is quality of a human being to produce for an income. Labor (N) is
demanded on its marginal productivity (MP). Higher the productivity, higher the price of Labor.
Supply of labor is a backward bending curve. Labor is not homogenous: there are unskilled,
semi-skilled, skilled, highly skilled, intelligent as well as lazy labor. Productivity of each
category of labor is different; as is different at different times of the day of the same laborer.
MPN is enhanced through, skill training, education, division of labor and specialization. Food,
nourishment, health as well as leisure hours and good work environment enhance productivity of
labor
7. Characteristics of Capital (K): Capital is a man- made resource. Capital enhances the
productivity of labor by saving time or by producing more in less labor hours Capital is of Two
types: Working Capital or raw materials which are worked upon, energy resource, and money.
Working Capital increase when production increases and decrease when production decreases
and are zero when production is zero and Fixed Capital (Catalytic Agent) which help change
place, shape or utility of a raw material but does not change in the short run. They include
machines, infrastructure, tools, equipment and technology. Fixed Capital does not increase when
production increases, does not decrease when production decreases and remains constant even
when production is zero in the short run time period
8. Characteristics of Entrepreneur (Risk Taker)
Entrepreneur Decides as Head of the Firm: Decides What to Produce = depending upon profit
margins of the product (difference between costs of production and Market Price). Decides How
to Produce = (Capital ratio Labor). More of K and less of N or less of K and more of N etc.
Decides Where to Produce = near the market of finished products or near the factor market.
Decides for Whom to Produce = (For the rich consumer market or the general public consumer
market or for the industry producing producers or intermediate goods or services / for local or
international markets). Decides When to Produce = when there is a slump in the market (low
demand) or when there is glut in the market (high supply) or when there is high demand and low
supply etc. Decides How Much To Produce = to match the market demand or to produce less
than the market demand depending on the productive capacity of the firm
Tasks of Entrepreneur as an Organizer: Hires or buys other Factors of Production (Supply
Chain Management = Backward Linkages). Oversees the Productive Process (Quality &
Quantity Control Management = Organizational Behaviors). Ensures Final Sale of the Product =
Marketing and Sales Contracts = Forward Linkages)
55
Note: In Small or Medium Business (SME) all the above functions (decisions & Tasks) are
performed by an Entrepreneur (Single Proprietor or in partnership) = Owner who is the Risk
taker. In Large Public and Private Corporations or Multinational Organizations (MNC’s) these
functions are performed by Managers and the Risk Taking is transferred to the Tax payer (in
Public Sector) and to the Stock Holder who is the Owner & Risk Taker (in Private Sector)
Corporations and Organizations.
Types of Costs of Production
 Explicit Costs = Private Costs that can be easily calculated
 Implicit Costs = Private Costs that are unseen or can not be easily calculated
 Internal Costs = Private Costs of Inputs (Factors of Production) paid by the Firm or
producer (implicit + Explicit Costs)
 External Costs = Costs not paid by the Firm but incurred by the Government or the
community due to the production process of the firm = Environmental Costs
 Opportunity Costs = Cost of an Opportunity measured in benefits of Opportunities not
availed
Fixed and Variable Cost: Fixed Costs do no vary with the quantity of output produced and are
usually incurred before the production process (are Risk of the Firm) and Variable costs vary
with the quantity of output produced and usually are incurred with the production process
Total costs (TC)
Formulas to Calculate Costs

 TC = Total Costs = TFC + TVC
 (Total Costs = Total Fixed Costs + Total Variable Cots)
 AC (Average Costs) = TC / Q
 AC = TC / Q or
 AC = TFC + TVC / Q or
 AC = TFC/ Q + TVC/ Q
56
 AFC = TFC/q and AVC = TVC/q
 (Total Costs divided by quantity of output)
 MC = MC = ∆TC / ∆Q
 (Marginal Costs = change in Total Costs divided by change in quantity)
 TFC divided by q of output will give us a down ward sloping AFC curve from A’ to B’
 TVC divided by q of output will give us an upward sloping AVC curve from A’’ to B’’
 AFC + AVC will give us a U shaped AC Curve from AEB
Reason for AC to be U shaped: AC curve falls from A to E because AFC curve is falling
steeply from A’ to E’ and although AVC is rising from A” to E’, it is rising slowly and therefore
falls below AFC curve. AC curve is an upward sloping curve from E to B because from E’ to B”
AVC is rising steeply and although AFC is still falling from E’ to B’, it is falling slowly and AFC
falls below AVC curve. Point E on AC curve is the lowest point, because at point E’ AFC = AVC
Least Cost Position
MC = AC
Marginal Costs = Average Costs
57
Least Cost point of the Firm when AC = MC
MC curve (Marginal Cost Curve) shows the rate of change in total Costs (TC). MC Curve is also
a U shaped Curve. When AC is falling, MC is also falling but at a lesser rate, therefore MC curve
falls below AC curve. When AC is rising, MC is also rising, but at a faster rate than AC,
therefore MC curve lies above AC curve. At point E the lowest point on AC curve, MC = AC
therefore this point E is the least cost point of the firm. Before point E Costs are falling, therefore
profits should rise. After point E costs are rising, therefore profits should decrease. It is advised
that the firm produces at point E where
MC = AC
Long Term Average Costs Curves:
The Classical View: When there is no change in technology and fixed costs, than when we join
least cost points of different years, we derive the LACC (Long Term Average Cost Curve
The Modern View of LACC. In the long run Technologies will change, new and better
machines as well as more productive labor will be used, there will be economies of scale,
58
therefore LACC will be a down wards sloping curve, because there would be reduction in long
term average costs
Economies and Diseconomies of scale

Economies of Scale refers to the efficient, cost saving mechanisms due to expansion of the firm
and its production from small scale to large scale firm: Or the Average Costs fall as Firm
expands. Input costs are decreasing while output is increasing. Efficient scale: the quantity of
output that minimizes average costs. Economies of scale is whereby the long-run average total
costs fall as the quantity of output increases. Diseconomies are the inefficient behaviors and
increase in costs due to expansion (monopolization) of the firms productive process or the firms
AC rise as the firm expands its operations input costs are increasing while output is decreasing
Diseconomies of scale is whereby long-run average total costs rises as the quantity of output
increases. Constant returns to scale is whereby the long-run average total costs stay the same as
the quantity of output changes where input costs = output
Economic and Accounting Profit: Economists includes all opportunity costs when analysing a
firm. Accountants measure only explicit costs therefore economic profits are smaller than the
accountants profits. Implicit costs: external costs and opportunity costs explicit cost: costs of
production incurred by the producer.
Law of Variable Proportions
Law of Variable Proportions show the increase or decrease in marginal output (Returns =
Productivity) of a firm when three factors of production (Land; Capital and Entrepreneur) remain
constant while there is an increase in one input (labor). Law of Variable Proportions also show us
when to change a machine for a better technology. Because if all machines are changed together
than it becomes cost ineffective for the firm and if no machine is changed it again becomes cost
ineffective for the firm in the long run. Therefore Rule of 3 is used
59
Inputs: Inputs are resources used in the production of goods and services = Factors of
Production = Land + Labor + Capital + Entrepreneur (organization)
𝑄=𝑓 (Ќ, 𝑁)
Where K = Capital; N = Labor inputs; Q is quantity of output and bar over K shows that Capital
is constant (does not change) in the short run model
𝑄=𝑓 A(Ќ, 𝑁), = Production function
Where A is the level of technology used in the long run model
Total product (Output), Marginal product and Average product. Total productivity of Labour
(TPN)
Marginal Product of Labour (MPN) = Δ𝑇𝑃𝑁 / Δ𝑄
and
Average product of Labour (APN) = 𝑇𝑃𝑁 /𝑄
MPN = APN
Δ𝑇𝑃𝑁 / Δ𝑄� = 𝑇𝑃𝑁 /𝑄
Marginal product = Average product
Three Law of Variable Proportions (Rule of 3) Measures Input Ratio Output

 Law of Increasing Marginal Productivity (MPN) = Increasing Returns to Scale = Every
Rs. Input of Labor resource will give us more than 100% output, which will constantly rise.
60
 Law of Constant marginal Productivity (MPN) = Constant Returns to Scale = Every
Rs. Input of Labor resource will give us 100% output, which will remains constant.
 Law of Diminishing Marginal Productivity (MPN) = Decreasing Returns to Scale =
Every Rs. Input of Labor resource will give us less and less than 100% output, which will
subsequently become zero and even negative.
Production Function with One Variable (N) others remaining constant in the short run
Relationship between MP and TP
When MP is rising from O to A, TP curve is also rising from O’ to A’ but at a fast rate, therefore
TP curve is steep (Law of Increasing Marginal Returns or Product) because machines are new
and labor is young and skilled. When MP is constant from A to E, TP is still rising but at a lesser
pace, therefore the TP curve is less steep (Law of Constant Marginal Returns or Product) because
machines are less new and labor is less young or less skilled. When MP is Diminishing from E to
C, TP is still rising but at a flatter pace, therefore the TP curve is flat (Law of Diminishing
Marginal Returns or Product) because machines old and labor is older or lazy. At Point C MP is
Zero while TP is at its highest at point C’ and After point C MP is minus and TP curve starts to
fall. Note: Total Product (Returns or Output) will not give us the real picture, as it rises all along
the production process from O to C’. Marginal Product will give us the real picture, whether the
firm’s output levels in relation to inputs are increasing, decreasing or are constant; at its
minimum or in the negative.
Optimum position of the firms Input: output ratio
When to change machines or labor input
Where AP = MP
 When MP is rising, AP is also rising but at a slower pace, the AP curve lies below MP
curve
 When MP is falling, the AP is also falling but at a faster pace, therefore AP curve lies
above MP curve
 At point E AP = MP after which the law of Diminishing Marginal Product will set in.
Therefore change the machine or labor input at point E where
AP = MP
Iso Quants & Iso-Cost Line
Iso Quants show the substitution levels of the firm between Capital and Labor
 Iso-Quants are down ward sloping
 Iso-quants are Convex to the Origin Curves
 Iso- quants are parallel to each other curves
MRTS = Marginal Rate of Technical Substitution
MRTS = ΔN/ ΔK
Slope of Iso-quant = MPn/MPk
61
Higher the iso-quant higher the productivity. Lower the iso-quant, lower the productivity
On all points points of the same iso-quant the productivity from any combination of labor and
capital is the same. Iso-cost line is the price of labor and capital inputs = Pn/Pk = w/I (wage /
interest). Point of Tangency between Iso-cost line & highest possible iso-quant is the equilibrium
point of the firm where MPn/MPk = Pn/Pk = w/i
Production Process & isoquants

Assumption: that a particular commodity can be produced with only a limited number of input
combinations. Each of these input combinations or ratios are called a Production Process or
activity and can be represented by a straight line (ray) from the origin into outer space. By
joining the points of equal output on the ray of process, we define the iso-quant for the particular
level of output of the commodity. These isoquants will be made up of straight line segments and
have kinks rather than being smooth
62
The
left panel shows production process 1 using k/N = 2 (One unit of Capital and 2 unis of labor
inputs) ; process 2 using k/N = 1 (One unit of Capital and one unit of Labor inputs); and process
3 using k/N = ½ (one unit of Capital and half unit of labor inputs) that the firm can use to
produce a particular commodity
The right panel shows that for example 100 units of the quantity can be produced using 6K and
3N at point A; 4K and 4N at point B and using 3K and 6N at point C. Joining these points we
get the isoquant for 100Q.
Because of the constraints returns to scale, using twice as many inputs along the production
process (rays) result in twice as much inputs. Joining these points D, E and F we get isoquant for
200Q. With iso-cost line GH the feasible region is triangle JON and the optimal solution is at the
point E where the firm uses 8K: 8N and produces 200Q. To save costs the firm will produce the
first 100Q at OA with process 1 and the next 100 Q at point OE with process 2. (Input mix or
Capital-Labor Mix)

THEORY OF MARKETS
b) PERFECT COMPETITION
 Assumptions
 Revenue Curves
 Equilibrium Of A Firm Under Short And Lon Run
 Short And Long Run Supply Curves Of A Firm And Industry
 Pure Competition And Efficiency
Market Structure are:
63
 Perfect competition.
 Monopoly.
 Monopolistic Competition.
 Oligopoly & Duopoly
Perfect competition: A Market where many buyers and sellers (small firms) trade identical
products , with perfect information and perfect mobility of factors of production and that each
buyer and seller is a price taker determined by the equilibrium of forces of supply and demand.
Under Perfect Competition the quality of the product is enhanced, while the price of the product
tends to fall therefore Consumers gain under Competition while Producers tend to loose
Characteristics of Perfect Competition
Many Small Sellers competing in the Market: Price Takers. In other words they will accept at
what ever market price they sell their product. Homogeneous product of all the firms: The
quality of the product will all the sellers is the same. Many Close Substitutes of the product are
available in the market. Perfect Information about the number of sellers, buyers, quality of the
product and Price in each shop of the product as well as any other information is available to all
the buyers and sellers. Perfect Mobility of factors of Production from one producer to another
and from producing one good (x) to another (y). No Restraints of entry or exit to and from the
market by entrepreneurs. No Government intervention in the market to limit demand, supply or
price of the product. No Advertisement or marketing cost
Revenue & Revenue Curves under Perfect Competation
Economic and Accounting Profit. Economists includes all opportunity costs when analysing a
firm. Accountants measure only explicit costs therefore economic profits are smaller than the
accountant’s profits. Implicit costs: external costs and opportunity costs and explicit cost: costs
of production incurred by the producer
Revenue and Profits
A firm’s revenue is the amount of money received after selling a unit of output in the market
Firm exists in the market only for profit motive
Revenue – Costs = Profits
Or
MR = MC
Where the MC curve intersects MR from below
Average and marginal Revenue
Average revenue (AR) = total revenue divided by quantity sold (TR/Q)
Marginal Revenue (MC) the change in total revenue from an additional unit of output sold
MR = ∆TR/∆Q
Revenue of a Small Firm under Perfect Competition will come from Market Price where Market
Demand intersects the Firm’s supply curve (Price Taker). As all demand, supply, price and other
factors in the market are constant in the short run, therefore the Average Revenue of the Small
Firm under Perfect Competition will be a straight line parallel to the horizontal axes. Marginal
64
Revenue shows the rate of change in Total Revenue. As there is no rate of change in TR because
it is a n upward sloping straight line, therefore MR of a small firm under perfect competition in
the short run will also be a straight line parallel to horizontal axis and will fall on the AR curve
Equilibrium level of a Firm
MC = MR
MC curve intersects MR from below
It is recommended for the firm to produce at point E, because before E profits are rising and
Marginal costs are below Marginal Revenue. After E Marginal costs are above Marginal revenue
therefore there would be losses to the firm. Point E is the optimum production point of any firm.
Profits; Normal Profits or Losses to a firm will depend upon the least cost position of the Firm
which is (AC = MC).
If AC curve intersects MC curve below point E. there would be super-normal profits of PrEAPc
rectangle, because least costs of the firm are less than revenue of the firm.
If AC curve intersects MC curve at point E where MC curve intersects MR curve from below the
firm takes only normal profits, because this is a breakeven point and all costs are being met of
the firm (AC = MC = MR = AR = Market Price = Market Demand = Market Supply)
If AC curve intersects MC curve above point E, than Costs are more than revenue and the firm
will incur losses to the extent of PcBEPr because the costs of the firm are greater than its revenue
In the Long Run, firms that take losses will go out of the market. Firms that take profits will
have competition from new firms with better technology, machines, technique, processes, skills
and know how. Therefore all firms will take Normal Profits in the long run
Explanation of the Graph:

A small firm is a price taker, therefore the market price where there is equilibrium between
forces of demand and supply will give us AR of the firm which is the demand curve of the firm,
because the firm sells at point E where market demand buys the firms market supply. Because in
the short run the forces of demand, and supply do not change, the AR (D) curve of the perfectly
comparative firm is a straight line parallel to the horizontal axis. As the TR of the small firm is
an upward sloping straight line, with no change in its slope or the rate of change, therefore the
65
MR curve under perfect competition is also a straight line and falls on the AR (D) curve,
therefore AR (D) = MR. At point E the MC = MR therefore the firm will produce at point E,
because before point E costs are falling, and after point E costs are rising.

 MONOPOLY
 Characteristics Of Monopoly
 Barriers To Entry
 Revenue Curves (https://www.youtube.com/watch?v=51jAdRy_wk4
https://www.youtube.com/watch?v=51jAdRy_wk4)
 Monopoly Demand, Output And Price Determination
 Economic Effects]Of Monopoly
 Price
 Discrimination
 Regulated Monopoly And The Concept Of Social Optimal Price And Fair Return Price
 Dilemma Of Regulation
Monopoly: Is a market situation where the sole seller of a product and has no close substitutes.
Monopsony is where there is a sole buyer in the market. Natural monopoly arises because a
single firm can supply goods or services to an entire market at a smaller cost than two or more
firms this happens when a firms average-total-costs curve declines over a longer period of time.
Government created monopolies arise because government have given one firm the exclusive
rights to sell some goods or services. Monopolies are usually inefficient, quality of the product
goes down and price of the product goes up. In Monopoly producer gains while consumers tend
to loose
Characteristics of Monopoly
One Large Producer (Seller). in the Market: Price Maker. Influences Demand, Supply or Price of
the Product. Homogeneous product of all the firms: The quality of the product is the same. No
Close Substitutes of the product are available in the market. Very Little Information is available
to all the buyers. No Mobility of factors of Production from one producer to another and from
producing one good (x) to another (y) and entry or exit to and from the market by entrepreneurs
is Restricted. There is Government intervention in the market to limit demand, supply or price of
the product. No Advertisement or marketing cost as the Monopolist controls the Market. Natural
Monopoly exists when the Sole Producer has all the rights over backward linkages or forward
linkages. Government Regulations can also create Monopoly Situation
Monopoly: Is a market situation where the sole seller of a product and has no close substitutes.
Monopsony is where there is a sole buyer in the market.
Natural monopoly arises because a single firm can supply goods or services to an entire market
at a smaller cost than two or more firms this happens when a firms average-total-costs curve
declines over a longer period of time. Government create monopolies arise because government
have given one firm the exclusive rights to sell some goods or services
66
Explanation of the Graph
As the large firm tries to increase the supply price of its product, the demand of its product would
contract, therefore the demand curve of the firm AR (D) is a downward sloping curve. The MR
curve of the firm therefore is also a down ward sloping curve which falls below the AR (D)
curve. The slope of AR (D) curve and the difference between the two curves shows the elasticity
of demand for the product of the firm.
At point E MC =MR where the large firm will produce and point B where the firm will sell on
the demand curve. RBEC is the super-normal profits the Monopoly or Oligopolistic firm will
earn.
How much profit will the firm make will depend upon (a) the elasticity of demand of the firm’s
product and (b) on the least cost point of the firm where AC = MC of the firm.
Welfare Cost of Monopolies
A firm charges monopoly price which is over and above the marginal costs and monopoly profits
arise. At monopoly price not all consumers who value the goods at more than its costs buy it and
this reduces the consumer surplus. The quantity produced and sold by the monopolist is below
the socially efficient levels. The deadweight loss reflects the costs of monopoly production.
Monopolies are large firms and therefore usually are inefficient, because they are making profits
due to lack of competition and therefore do not work at their efficient cost levels

 MONOPOLISTIC COMPETITION
 Features
 Price And Output Determination
 Monopolistic Competition And Economic Inefficiencies
 Non-Price Competition
67
 Economies Of Advertising
 Monopolistic Competition And Economic Analysis
 Monopolistic Competition & Oligopoly: Monopolistic Competition is a market
structure in which many firms sell products that are similar but not identical. Oligopoly is
a market structure in which only a few sellers offer similar products or identical products.
Natural Oligopoly is when product is homogeneous. Differential Oligopoly is when
product is differentiated. Price Discrimination: Selling the same product on different
markets at different prices. Collusion is an arrangement among firms in a market about
quantities to produce or prices to charge.
 Cartel is a group of firms acting in unison on supply or price = when all firms act like a
monopoly in the market are share the same price. Trade Wars = When large firms
compete and act like perfect competition but Oligopolistic Firms do not compete on
Price. They have non-price competition in (a) advertisement; (b) after sales service and ©
quality of the product
 Characteristics of Monopolistic Competition
 Many Small Seller in the Market: Price Maker. Not Homogeneous product of all the
firms: The quality of the product is NOT the same (Differentiated Product) = The
quality, fragrance, brand name, wrapping, color or shape of the product differs to make
the product a monopoly as well as Price Discrimination = Different People paying
different Prices for the same product. The seller knows the difference of buying power of
different consumers (buyers). Few Close Substitutes of the product are available in the
market and Advertisement cost
Monopolistic Competition & Oligopoly: Monopolistic Competition is a market structure in
which many firms sell products that are similar but not identical. Oligopoly is a market structure
in which only a few sellers offer similar products or identical products. Natural Oligopoly is
when product is homogeneous. Differential Oligopoly is when product is differentiated. Price
Discrimination: Selling the same product on different markets at different prices. Collusion is an
arrangement among firms in a market about quantities to produce or prices to charge.
Cartel is a group of firms acting in unison on supply or price = when all firms act like a
monopoly in the market are share the same price. Trade Wars = When large firms compete and
act like perfect competition but Oligopolistic Firms do not compete on Price. They have non-
price competition in (a) advertisement; (b) after sales service and © quality of the product
Characteristics of Monopolistic Competition
Many Small Seller in the Market: Price Maker. Not Homogeneous product of all the firms: The
quality of the product is NOT the same (Differentiated Product) = The quality, fragrance,
brand name, wrapping, color or shape of the product differs to make the product a monopoly as
well as Price Discrimination = Different People paying different Prices for the same product.
The seller knows the difference of buying power of different consumers (buyers). Few Close
Substitutes of the product are available in the market and Advertisement cost
Product differentiation and Price discrimination
Product differentiation: Firms change the shape, color, fragrance, brand name, shape, wrapping
of the product to charge different prices at different markets
68
Price Discrimination: Firms charge different prices for the same product in different markets
Advertisement: Advertisement and marketing are tools of monopolistic firms to attract buyers
towards their products. Advertisements increase revenues but increase costs also
Kinked demand curve:
Strategic Behaviors under Oligopoly & Duopoly
Monopolistic Competition: Monopolistic Competition is a market structure in which many
firms sell products that are similar but not identical. Oligopoly is a market structure in which
only a few sellers offer similar products or identical products. Collusion is an arrangement
among firms in a market about quantities to produce or prices to charge. Cartel is a group of
firms acting in unison on supply or price.
If the Monopolist (large Firm = Price Maker) increases the supply price of his commodity, than
the Average Revenue of the Firm which is the market Demand curve of the firm will fall as price
rises. Therefore The AR (D) curve will be a downwards sloping curve. The MR curve of the
Large Firm will also be down ward sloping, but the MR will fall below AR curve. The distance
between the two curves as well as the slope of AR (D) curve will show the elasticity of demand
for the commodity. The firm will produce at point E where MC = MR and sell at point A on the
AR (D) market demand curve. Therefore PrAEPc are super Normal profits of a Monopolistic
Firm. These Profits will depend upon (a) Elasticity of Demand (slope of the AR (D) curve) and
(b) least costs of the firm AC = MC
 Product differentiation: Firms change the shape, color, fragrance, brand name, shape,
wrapping of the product to charge different prices at different markets
 Price Discrimination: Firms charge different prices for the same product in different
markets
Kinked demand curve: If there are few large sellers in the Market that can influence demand,
supply or Price of a Commodity it is called Oligopolistic Market Structures. If there are only
Two Firms competing for Market share it is called Duopoly. If there are homogeneous product, it
is called Natural Oligopoly. If there are Differentiated Products it is called Differentiated
Oligopoly
 Advertisement: Advertisement and marketing are tools of monopolistic firms to attract
buyers towards their products. Advertisements increase revenues but increase costs also

 OLIGOPOLY
 Concept And Occurrence
 Four Models: Kinked Demand Curve
 Collusion And Cartels
69
 Price Leadership
 Cost-Push Pricing
Monopolistic Competition & Oligopoly: Monopolistic Competition is a market structure in
which many firms sell products that are similar but not identical. Oligopoly is a market structure
in which only a few sellers offer similar products or identical products. Natural Oligopoly is
when product is homogeneous. Differential Oligopoly is when product is differentiated. Price
Discrimination: Selling the same product on different markets at different prices. Collusion is an
arrangement among firms in a market about quantities to produce or prices to charge.
Cartel is a group of firms acting in unison on supply or price = when all firms act like a
monopoly in the market are share the same price. Trade Wars = When large firms compete and
act like perfect competition but Oligopolistic Firms do not compete on Price. They have non-
price competition in (a) advertisement; (b) after sales service and © quality of the product
Characteristics of Monopolistic Competition
Many Small Seller in the Market: Price Maker. Not Homogeneous product of all the firms: The
quality of the product is NOT the same (Differentiated Product) = The quality, fragrance,
brand name, wrapping, color or shape of the product differs to make the product a monopoly as
well as Price Discrimination = Different People paying different Prices for the same product.
The seller knows the difference of buying power of different consumers (buyers). Few Close
Substitutes of the product are available in the market and Advertisement cost
Product differentiation: Firms change the shape, color, fragrance, brand name, shape, wrapping
of the product to charge different prices at different markets
Price Discrimination: Firms charge different prices for the same product in different markets
Kinked demand curve:
Monopolistic Competition: Monopolistic Competition is a market structure in which many
firms sell products that are similar but not identical. Oligopoly is a market structure in which
only a few sellers offer similar products or identical products. Collusion is an arrangement
among firms in a market about quantities to produce or prices to charge. Cartel is a group of
firms acting in unison on supply or price.
If the Monopolist (large Firm = Price Maker) increases the supply price of his commodity, than
the Average Revenue of the Firm which is the market Demand curve of the firm will fall as price
rises. Therefore The AR (D) curve will be a downwards sloping curve. The MR curve of the
Large Firm will also be down ward sloping, but the MR will fall below AR curve. The distance
between the two curves as well as the slope of AR (D) curve will show the elasticity of demand
for the commodity. The firm will produce at point E where MC = MR and sell at point A on the
AR (D) market demand curve. Therefore PrAEPc are super Normal profits of a Monopolistic
70
Firm. These Profits will depend upon (a) Elasticity of Demand (slope of the AR (D) curve) and
(b) least costs of the firm AC = MC
 Product differentiation: Firms change the shape, color, fragrance, brand name, shape,
wrapping of the product to charge different prices at different markets
 Price Discrimination: Firms charge different prices for the same product in different
markets
Kinked demand curve: If there are few large sellers in the Market that can influence demand,
supply or Price of a Commodity it is called Oligopolistic Market Structures. If there are only
Two Firms competing for Market share it is called Duopoly. If there are homogeneous product, it
is called Natural Oligopoly. If there are Differentiated Products it is called Differentiated
Oligopoly
Distinguishing Character of Oligopoly is the Interdependence and Revelry between these large
firms which results from the fact that they are few firms in the market. The Oligopolistic knows
that any action of his firm will impact significantly the action of its rivals in the industry,
Therefore each large firm must consider the reaction of its compotators in deciding the:
 Pricing policies of it product,
 The degree of product differentiation to introduce,
 The level of advertising to undertake, and
 The amount of after sales services to provide etc.
Since Competitors can react in many different ways depending on the nature of industry, type of
the product, etc. there is no single Oligopoly Model in practice and in Theory. Because of the
Interdependence between rivals, managerial decision making is more complex
The sources of Oligopoly are the same as of Monopoly:
 Economies of Scale
 Huge Capital investments
 Exclusive Rights to produce a product or to use a certain process
 Loyal following by customers
 Control over the supply chain or a certain Raw material
 Government may give a franchise to one or a few firms etc.
 Limit Pricing or charging below market price to discourage entry of new firms sacrificing
short run profits for long run gains
Concentration Ratio (C-Ratio): The degree by which an industry is dominated by a few large
firms is measured by Concentration Ratio. These give the percentage of total industry scale of 4,
8 or 12 firms in the industry. In an industry which is 4-firm concentration ratio is close to 100 is
clearly Oligopolistic. Industry till 12 firms or 50 to 60 point concentration ratio are also
71
oligopolistic. Less than which (Ratio or more firms) are Competitive small firms. Concentrated
Ratio can overestimate the market power of the largest firm in the industry
Herfindahl Index (H-Index): H-Index is given by the sum of the squared value of the market
share of all the firms in the industry. The higher the H- value the greater the degree of
concentration of a firm in the industry
For example:
 If there is 1 firm than the H-Value would be 1002= 10,000
 If there are 2 firms, one with a 90% market share and another with 10% market share,
than 90 + 102 = 8,200
2
 If each firm has a 50% market share than 502 + 502 = 5,000
 With 4 equal sized firms in the industry H = 100
H-Index has an advantage over the C-Ratio because H-index uses data for all the firms in the
industry, not just of market share of top 12 firms and also by squaring the market share H-index
gives a greater value to the larger firm and smaller value to the smaller firm
Theory of Contestable Markets: Theory of Contestable Markets states that even if there is One
(single) firm in the Market (Monopoly) or only a few firms (Oligopoly), these firms will still
operate as if it or they were under perfect competition as if entry to the Market was ‘absolutely
free’ (There is no cost to entry of new firms in the market). Because if entry is free and exit is
costless than the market becomes Competitive. Monopolistic or Oligopolistic firms will operate
as they were under perfect Competition and sell at a price which only covers the average costs
(least Costs) therefore there would be no economic profits even under Monopoly situation
Oligopolistic Models
Some Important Oligopolistic Models are:
 Kinked Demand Curve Model
 Cartel Arraignment and
 Price leadership Model
Kinked Demand Curve Model: If an Oligopolistic raised its Price, it would lose most of its
customers because other firms in the industry would not follow by raising their prices. On the
other hand he could not increase its share of the market by lowering its prices, because its
competitors would quickly match price cuts. Prices are upward stagnant and down ward flexible.
As a result he faces a demand curve that has a Kink at the prevailing price and is highly elastic
for price increase but much less elastic for price cuts. In this Model the Oligopolies recognizes
their interdependence but act without collusion in keeping their prices constant even in the face
of changed costs and demand conditions – preferring instead to compete on the basis of quality,
advertisement and after sales services.
72
Ex
planation of Kinked Demand Curve: The Demand curve facing the Oligopolistic is AR (D) or
ABD. And has a kink at the prevailing market price at point B, On the assumption that
competitors match price cut but not price increase. The Marginal Revenue curve (MR) or AGEH.
The best level of output of this firm is given by point E at which MC2 curve intersects the
discontinuous portion of the MR curve. Any shift of the MC curve from MC1 to MC3 would
leave price and output unchanged at point H
Cartel Arraignment: In the kinked Demand curve Model the Oligopolists did not Collude to
restrict or to eliminate Competition in order to increase profits. Collusion can be overt or
explicit, as in centralized and market sharing Cartels. Cartel is an arraignment of a few large
firms producing the same product to make a monopoly in Price or supply of the product or share
a segment of the market for each and act like a Monopoly For example OPEC, AIATA, Postal
Union
There are 2 types of Cartels: Market Sharing Cartel and The Centralized Cartel
Market Sharing Cartel gives each member the exclusive rights to operate in a certain market
segment, geographical area as a Monopoly =AIATA
Centralized Cartels are a formal agreement among these few large firms producing the same
product to set the monopoly price, allocate output share to each firm (country) and to determine
how profits are to be shared = OPEC
73
Expl
anation of Cartel Profits
AR (D) is the Demand curve of the Industry and MR is the Marginal Revenue of the Industry.
∑ MCis the sum total of the Marginal costs for the cartel which is obtained by summing up of
costs of all the large firms in the cartel. All the firms will produce at point E where MC = MR
and sell at point B on the demand curve of the Cartel. Thus taking monopoly profits and sharing
them between all the firms that make the Cartel arraignment. Firms may demand a more
equitable share of the profit under the threat of withdrawing from the Cartel. Therefore this is an
important weakness of the Cartel and an important reason for cartels to fail. Cartel Members also
have a strong incentive to cheat by selling more than their quota. Monopoly Profits would also
attract new large firms into the market
Price Leadership Model: One way of making necessary adjustments in the Oligopolistic
Market without fear of starting a price war or without cartel is by Price Leadership. With Price
Leadership the firm that is recognized as the market leader in the industry initiates price change
and then other firms quickly follow. The price leader usually is the largest firm in the industry
which would be a low cost firm and would also be called the biometric firm. In the Price
Leadership Model the biometric firm first changes its own price and makes monopolistic profits
and then allows other firms to follow taking a share of its monopoly profit.
74
Explanation of Price Leadership Model
AR (D) is the Average revenue of the Industry. MR is the MR of the Industry. The cost firm of
the Price leader firm is MCL, while ∑ MC is the total marginal costs of the industry. The large
firm will produce at point E and sell at point B making monopoly profits. The other firms will
follow and take away a part of the profits of the large firm consequently
Sale Maximization Model: Sale Maximization model states that modern corporates seek to
maximize their sales after an adequate rate of returns has been earned to satisfy the shareholders
Explanation of sales maximization Model
75
TR is the Total Revenue of the Oligopolistic Corporation. TC is the Total Cost Curve of the
Corporation. The largest difference between TR and TC curves is the maximization of Profit at
point E. Before E on the profit Curve Profits are rising and after E profits are falling. Therefore E
is the point of Profit Maximization of the Firm. After this point as sales increase costs will also
increase therefore TR- TC = Profits that will tend to decrease

 FACTOR PRICING (https://www.youtube.com/watch?v=eiq0xGIsMKY)
 Significance Of Resource Pricing
 Marginal Productivity Theory Of Resource Demand
 Determinants Of Resource Demand
 Elasticity Of Resource Demand
 The Demand Curve For One Factor And Many Factors
 Derivation Of Supply Curve Of Labor
 Factor Pricing Under Perfect Competition In Both Product And Factor Market
 Monopoly In Product Market And Perfect Competition In Factor Market
 Monopoly In Product And Factor Market
 Theory of Consumer Choices and frontiers of microeconomics
 Some issues in Natural Resource Economics
76
CV of Prof. Dr. Qais Aslam
 Prof. Dr. Qais Aslam is PhD in Economics from University of National & World Economy (Higher
Institute of Economics), Sofia, Bulgaria
 And is LLB from PU Law College, Lahore & Diploma in Environmental Law.
 Currently - is working as Professor of Economics at the University of Central Punjab, Lahore; and was
the former Chairman, Department of Economics at GC University (GCU), Lahore.
 Has 30 years teaching and Research experience at Post-Graduate (University) levels and an
administration experience of more than 8 years.
 Dr. Qais Aslam has 23 Published Research papers in HEC’s Recognized Journals and 40 other
publications.
 Dr. Qais Aslam - is the HEC’s approved PhD supervisor in Economics.
 Is Member of the Editorial Board of The International Journal of Pluralism and Economics Education,
USA
 Is Member of the Editorial Board CRESD Research Journal, India.
 In 2012-2013 was DS at Kashmir Institute of Management (KIM) Muzafarabad
 Prof. Dr. Qais Aslam is on the panel of external PhD examiners to a five Indian Universities including
the Aligarh Muslim University, India, And has supervised many theses at Masters and M. Phil levels and
one at PhD level.
 Prof. Dr. Qais Aslam contributed to HEC’s syllabus committees on Economics and Commerce as well
as the Lahore Text Book Board
 Prof. Dr. Qais Aslam has been visiting professor to various departments of the University of the Punjab,
Lahore; PU Law College, Lahore, Kinnaird College for Women, Lahore; NUML, Lahore and University
of Animal Health Sciences, Lahore. He has also delivered lectures at Administrative Staff College,
Lahore; NIPA, Lahore and Civil Services Academy, Lahore, KIM Muzafarabad; NIM, Islamabad, as
well as the Custom, Excise and Revenue Department’s Institutes at Lahore, and in April 2012
 He read his paper in the OIC Ambassador’s conference at Bhurban, Murree.
 Prof. Dr. Qais Aslam has attended International Conferences and read papers in USA, UK, France
Bulgaria, India, and Bangladesh and also read numerous papers and delivered lectures on local
conferences and NGO forums on Environmental Issues, Social Economics and Economy of Pakistan at
Lahore, Islamabad, Multan, Faisalabad and Karachi.
 Has also visited almost all the countries of Europe and South Asia USA and a few in Central Asia and in
Middle East on his personal capacity.
 Prof. Dr. Qais Aslam has written many research articles in local and International journals and written
chapters in a number of books on Economic Issues and a chapter on Mughal Economic Growth in the
Encyclopedia Economica, UK.
 Prof. Dr. Qais Aslam has also written newspaper articles and has numerous Radio & TV talks on local
and BBC channels, Radio BBC, BBC World TV, Al Jazeera TV, and Radio Germany on issues relating
to the Economy of Pakistan in the current political and Global scenario.
77
 He has written a book on economic Issues Titled Selected Essays in Political Economy of Pakistan
 His recent publications include Social Protection & the Informal Sector in Pakistan – Review of Federal
& Provincial Budgets 2013-2014 and Gender Issues of Women Home Based Workers in the Informal
Sector – Review of Federal & Provincial Budgets 2014-2015.
 Dr. Qais Aslam Assessment of Annual Provincial Budget Punjab 2015-2016 – process, Priorities &
Citizen’s Participation
 Dr. Qais Aslam Analysis of Federal & Provincial Budgets 2015-2016 – A Gender perspective of
Informal Economy
 Prof. Dr. Qais Aslam has also written many short stories under the caption “Nothing but the Truth”.
 Prof. Dr. Qais Aslam is the member of PIDE Islamabad; PELA Pakistan, Pakistan Economic Forum,
National Geographic Society USA, Human Rights Commission of Pakistan; PODA, Islamabad to name
a few.
 Prof. Dr. Qais Aslam specializes in Environmental Economics; Poverty, Social Economics Issues, and
Development Issues with reference to Economy of Pakistan and International Economics with reference
to WTO. He also teaches History of Economic Thought and Philosophy of Social Sciences, Business &
Economics.
 Was Delegate to Pakistan & India Solidarity meeting on their independence days under SAFTA to
Amritsar, India on 14th & 15th August 2007
 Was Delegate to Conference on Pakistan – Bangladesh Economic Relations at Dhaka in May 2006
 Was Delegate to Punjab-Punjab Trade and Culture Exchange under SAFTA delegation to India in
December 2005
 Was Delegate and presented paper to 11th World Congress on Social Economics June 2004 Albertville,
France
 Was Guest of Department of Economics, Strathclyde University, Glasgow UK, on Link Program
between Government College, Lahore and Strathclyde University, Glasgow between 15th January 2002
and 1st February 2002
 Was Delegate to the Conference: `Youth Towards the 21st Century' 24th - 31st May 1987, Sofia,
Bulgaria.
 Was Deputy Leader of the Pakistani Delegation to the 12th World Youth Festival in Moscow, August
1985.
 Was Delegate to the WFTU Asian-Pacific Seminar on Rural Development 15th - 17th January 1990,
Karachi, and Pakistan Delegate to the 17th FAO Conference for Asia and the Pacific, April 24 - May 3,
1984 Islamabad
 In 2014; 2015 and 2016 Dr. Qais Aslam has participated in numerous TV debates on different channels
on the issues pertaining to Economy and Budget of Pakistan
 He has read his papers on the Federal and Punjab Budgets; on GST Plus and Pakistan; on Fight against
Torture in Pakistan; on Gender and Home based Issues in Pakistan’s and Provincial Economies; and
written articles on Pakistan-China Economic Corridor; on Pakistan-Iran Economic Prospective and on
Federal Budget of Pakistan.
 He also co-authored a Research paper published in the Lahore Journal of Business Volume 3 (2) titled
Workplace Bullying and Employee Performance among Personnel in Pakistan
 In 2015-2016 Dr. Qais Aslam has chaired sessions and has been a key speaker on GSP Pus in context to
Environment & Human Rights; Climate Change, and China-Pakistan Economic Corridor as well as
Issues of Poverty and sustainability in Pakistan
 Dr. Qais Aslam Participated in International Workshop as Climate Leader in. Climate Reality Project
as Climate Leader, Miami, Florida, USA Conducted by Al Gore (Former Vice President of USA)
September 2015
 Dr. Qais Aslam Participated in International Workshop as Climate Leader in. Climate Reality Project
as Climate Leader, Houston Taxes, USA Conducted by Al Gore (Former Vice President of USA)
August 2016
78
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School of Business, Faculty of Management

Course Code: ECO2003

(Lecture 1 & 2 – Week 1)

(Lecture 17 & 18 – Week 9)

Branches of Basic Economics

(Lecture 3 & 4 – Week 2)

Demand Schedule: A demand schedule is a table where quantity demanded of a certain

Shift of the demand curve is due to a change in other things

(Lecture 5 & 6 – Week 3)

Demand Schedule: A demand schedule is a table where quantity demanded of a certain

Shift of the demand curve is due to a change in other things

Slope of the Budget line = Px / Py

(Lecture 13 & 14 – Week 7)

Percentage change in quantity demanded of a product

Applications of Supply, Demand and Elasticity

(Lecture 15 & 16 – Week 8)

(Lecture 17 & 18 – Week 9)

Formulas to Calculate Costs

Least Cost point of the Firm when AC = MC

Formulas to Calculate Costs

Economies and Diseconomies of scale

Three Law of Variable Proportions (Rule of 3) Measures Input Ratio Output

Production Process & isoquants

(Lecture 21 & 22 – Week 11)

Market Structure are:

Explanation of the Graph:

(Lecture 23 & 24 – Week 12)

(Lecture 25 & 26 – Week 13)

(Lecture 27 & 28 – Week 14)

Explanation of sales maximization Model

(Lecture 29 & 30 – Week 15)

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