ECONOMICS (ECO105A)

Course Teacher- Shahnaz Haque

Micro economics- The branch of economics that deals with human behavior and choices as
they relate to relatively small units—an individual, a firm, an industry, a single market.

PPF- Production Possibilities Frontier (PPF) represents the possible combinations of two
goods that can be produced in a certain period of time under the conditions of a given state
of technology and fully employed resources.

Law of supply- As the price of a good rises, the quantity supplied of the good rises, and as the
price of a good falls, the quantity supplied of the good falls, ceteris paribus.

Law of demand- As the price of a good rises, the quantity demanded of the good falls, and as
the price of a good falls, the quantity demanded of the good rises, ceteris paribus.

Determinants of demand-
1. Income
2. Consumer Preferences
3. Number of Buyers
4. Price of related goods
5. Expectation of future

Determinants of supply-
1. Production cost
2. Technology
3. Number of sellers
4. Expectation for future prices

Price elasticity of demand- A measure of the responsiveness of quantity demanded to

changes in price.

Indifference curve- The curve that represents an indifference set and that shows all the
bundles of two goods giving an individual equal total utility.

Characteristics of indifference curve-

1. Indifference curves are downward sloping (from left to right).
2. Indifference curves are convex to the origin.
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3. Indifference curves that are farther from the origin are preferable because they represent
larger bundles of goods.
4. Indifference curves do not cross (intersect).

Budget line- Budget line is a graphical representation of all possible combinations of two
goods which can be purchased with given income and prices, such that the cost of each of
these combinations is equal to the money income of the consumer.

Consumer equilibrium- Equilibrium that occurs when the consumer has spent all income and
the marginal utilities per dollar spent on each good purchased are equal:
𝑀𝑈𝐴 𝑀𝑈𝐵 𝑀𝑈𝐶 𝑀𝑈
= 𝑃 = 𝑃 =…= 𝑃 𝑍
𝑃
𝐴 𝐵 𝐶 𝑍
where the letters A–Z represent all the goods a person buys.