LECTURE NOTES

Tasneema Afrin
Assistant Professor
IBA,DU
INTRODUCTION
Salvatore#1
Introduction
Microeconomics
■ Individual Decision Making Units
Economics ■ Economic Units
Scarce Resources • Households
• Business Firms
•Land (Rent)
■ Market Types
•Labor (Wages)
• Goods and Services
•Capital (Return) • Economic Resources
•Entrepreneurship (Profit) Macroeconomics
Human Wants ■ Total or Aggregate Level of Economic
Variables
Functions of Economic System

■ What to produce
■ How to produce
■ For whom to produce
The Circular Flow of
Economic Activity

• The circular flow of economic

activity is a model showing the
basic economic relationships
within a market economy.

• Goods and services flow through

the economy in one direction
while money flows in the opposite
direction.
BASIC DEMAND AND
SUPPLY ANALYSIS
Salvatore # 2
 Market Demand
§ A market demand schedule is a
tabulation of the quantity of a good
that all consumers in a market will
purchase at a given price.

§ Ceteris Paribus Assumptions:

income, taste, price of related
commodities, number of
consumers

§ Generally, there is an inverse

relationship between the price and
the quantity demanded. This is
known as the Law of Demand.

§ The graphical representation of

a demand schedule is called
a demand curve.
Changes in Demand
Rise in consumer income, taste, price of Drop in consumer income, taste, price of
substitute commodity, number Of substitute commodity, number of
consumers in the market and fall in price of consumers in the market and rise
complementary commodity in price of complementary commodity
 Market Supply
§ A supply schedule is a table that
shows the relationship between
the price of a good and the
quantity supplied.

§ Ceteris Paribus Assumptions:

technology, resource prices,
weather conditions etc.

§ Generally, there is a positive

relationship between the price and
the quantity supplied. This is
known as Law of Supply.

§ The graphical representation of

a supply schedule is called
a supply curve.
Changes in Supply
Market Equilibrium
The equilibrium in a market occurs where the
quantity supplied in that market is equal to the
quantity demanded in that market.
Surplus=Qs>Qd Shortage=Qs<Qd Qd=Qs
Adjustments to changes in demand and supply
Brainstorming

Qd=10-4p
Qs=-2+8p
■ Find out market equilibrium price Indicate what happens to the biriany
and quantity. market if-
■ Find out surplus/shortage if p=1.5
and p=0.5
■ Price of Teheri increases
■ What happens to equilibrium price
and quantity if demand curve shifts ■ Cattle supply goes down
from Qd to Qd* where Qd*=16-4p
■ Government subsidy is now
■ What happens to equilibrium price available for raising cattle
and quantity if supply curve shifts
from Qs to Qs* where Qs*=4+8p ■ Medical research shows red meat
adds to cholesterol level
Equilibrium Commodity Price with Trade
Interfering with Market
Working through the Market

An excise tax is an
indirect tax that is not paid by
the customers directly — instead,
the excise tax is imposed on the
supplier or the producer, who
then includes it in the product
price.