Intermediate

Microeconomics
Vivekananda Mukherjee
Department of Economics, Jadavpur University
 Scope 1. All goods sold in the market are identical (homogeneous goods)
2. All goods sell for the same price and
everyone has the same information
3. Buyers and sellers are price takers

Buyers’ and Sellers’ Behavior in Perfectly Competitive Market

Firms’ earning (revenue)

Product Market Individuals’ expenditure

Buyer Seller
Individuals Firms
[Utility(Happiness) [Profit maximizers]
maximizers] Seller Buyer

Individuals’ earning (income) Factor Market

Firms’ expenditure (cost)
What is new compared to the Principles Course?
1. We incorporate mathematics into our models along with graphs.

- At its heart, economics is concerned with resource allocation, so we want to be able to

create precise models that can be solved for optimal quantities.
For example,
- we often want to know exactly how much of a good a
consumer will want to consume to maximize her happiness (utility) given
that she has limited income.
- we also want to model how a firm maximizes its profit when choosing its
output level and the amounts of inputs it uses to make that quantity of
output.
Although graphs and verbal explanations are helpful, using math allows us to better
quantify these economic agents’ decisions
(specially in more than two commodities case)
Contd……
2. In intermediate microeconomics, the level of analysis is deeper than
in principles.
- We don’t take relationships such as the law of demand or the law of
supply for granted. We examine the details of why the relationships
exist and when they don’t apply.

3. Intermediate microeconomics has a greater policy focus than the

principles of microeconomics course.
- Understanding the economic behavior of consumers and producers is the
key to developing appropriate policies. We can also use this deeper
knowledge to attempt to predict how various policies (proposed or in
place) alter individuals’ and firms’ incentives and change their behaviors.
Government Policies

Firms’ earning (revenue)

Product Market Individuals’ expenditure

Buyer Seller
Individuals Firms
[Utility(Happiness) [Profit maximizers]
maximizers] Seller Buyer

Individuals’ earning (income) Factor Market

Firms’ expenditure (cost)
References
• Bernheim and Whinston: Microeconomics, 2nd Edition, McGraw Hill
Education
• Goolsbee, Levitt and Syverson, Microeconomics, 3rd Edition, Worth
Publisher, Macmillan Learning.
• Varian: Intermediate Microeconomics, 9th Edition, W. W. Norton
• Pindyck and Rubinfeld: Microeconomics, 9th Edition, Pearson
• Gravelle and Rees: Microeconomics, 3rd Edition, Prentice Hall
• Varian: Microeconomic Analysis, 3rd Edition, W. W. Norton
 Market
In the strictest sense, a market is defined by the specific product being bought and
sold (e.g., oranges or shares), a particular location (a mall, a city, or the Internet), and
a point in time (September 23rd, 11AM).

- In practice, the kinds of markets we talk about tend to be broadly defined.

They might be broad in terms of the product (e.g., all groceries rather than just
oranges), the location (often we consider all of India or even the world as the
geographic market), or the time period (annual sales rather than by day).
- These broader markets are often of more interest and result in more data to
analyze, but as we will see, defining markets too broadly can make the assumptions
of the supply and demand model less realistic. Thus, we face a tradeoff between
studying small, less consequential markets that closely match the underlying
assumptions and broader and more important markets that do not.
The approach
• Markets are defined in the narrowest possible way
so that following assumptions are satisfied……….
1. All goods sold in the market are identical (homogeneous goods)
2. All goods sell for the same price and everyone has the same information
3. Buyers and sellers are price takers
• However, it also looks at the way the exogenous factors influence the
activities (equilibrium) at the market
…….what happens if the price of a related product change in
other market? [Substitute or complement]
……..what happens if there is a change in technology?