A basic course in principles of microeconomics offers introduction to the economic analysis of the market mechanism studied under an introductory microeconomic and mathematical framework. Emphasis on supply and demand, elasticity, cost analysis, market structures, externalities, and contemporary microeconomic issues.
The principles of microeconomics course is taken by all undergraduate and graduate students who major in economics, mathematics, finance, accounting, statistics, law and even business subjects.
The learning objective of a course in principles of microeconomics is the following:
The course on principles of microeconomics is generally taught by teachers through a combination of multiple choice questions, detailed question answers in formative and summative styles, Discussion based questions that synthesize overall ideas learnt throughout the course as well as numerical homework problems based on consumer theory, cost theory as well as market structures.
The course on Principles of Microeconomics generally begins with an introduction to Demand and Supply with further comparative static analysis and extensions of Demand and Supply Analysis. In understanding this unit on demand and supply analysis in microeconomics, students are required to understand the concepts such as
In the units that deal with aspects of Public Spending and Public Choice & Demand and Supply Elasticity, students are expected to learn about market failures, such as externalities, and justify the economic functions of government. Students also learn to distinguish between private goods and public goods. In public goods analysis, the principles of microeconomics course deals with explaining about the nature of the free-rider problem and the role of government.
In the part that deals with analysis of demand and supply elasticity,
The unit on theory of Consumer Choice answers questions such about rational consumer behaviour and microeconomic choices such as
The theory of cost deals with derivation and computation of costs faced by a firm and the industry in its operation. After studying the theory of cost for firms, students are able to differentiate between the short run and the long run from the perspective of a firm for doing profit analysis
The cost theory also deals with the law of diminishing marginal physical product of inputs in the short run as well as the relation between the average physical product and the marginal physical product. Students are taught about the shape of the marginal physical product curve of the inputs as well as how to calculate marginal physical product and average physical product from total physical product of inputs that are variable, This section of cost theory answers questions related to fixed inputs, variable inputs as well as the law of diminishing marginal product of labour that is why the marginal physical product of labour eventually declines as more units of labour are employed.
Other learning objectives for cost theory in microeconomics includes:
In the theory of market structure in microeconomics, students are taught four main forms of market structure in economics, perfect competition, monopoly, monopolistic competition and oligopoly. Under the theory of Perfect Competition students are taught about the following aspects of profit maximization by firms in a perfect competitive market:
The theory of monopoly is based on describing the demand and marginal revenue conditions a monopolist faces as well as discussing how a monopolist determines how much output to produce and what price to charge. Under profit maximization in a monopoly, we learn to evaluate the profits earned by a monopolist and how price discrimination affects these profits. Students are also taught about monopoly related practices such as dumping and different forms of price discrimination such as first degree price discrimination, second degree price discrimination and third degree price discrimination through perfect discrimination as well as concepts of peak-load pricing and bundling.
Under the modules of Monopolistic Competition & Oligopoly and Strategic Behaviour, principles of microeconomics course deals with differentiation between monopoly, perfect competition as well as monopolistic competition. For studying about profit maximization techniques under monopolistic competition, students have to learn to Contrast the output and pricing decisions of monopolistically competitive firms with those of perfectly competitive firms as well as to Contrast the output and pricing decisions of monopolistically competitive firms with those of a monopoly.
In monopolistic competition market forms, the importance of product differentiation and advertising revenue and chamberlain’s model of monopolistic competition is also taught to explain why brand names and advertising are important features of monopolistically competitive industries.
The theory of market forms of oligopoly and oligopolistic competition outlines the fundamental characteristics of oligopoly and describe how to apply game theory to evaluate the pricing strategies of oligopolistic firms. Oligopolies also deal with strategic pricing, first mover advantage, and Identify features of an industry that help or hinder efforts to form a cartel that seeks to restrain output and earn economic profits as well as Bertrand competition. Elements of game theory for economics in principles of microeconomics include prisoner’s dilemma, zero sum game, the concept of Nash equilibrium, dominant strategies and dominated strategies, evaluating player’s pay-offs and best outcomes and pure strategy Nash equilibria as well as Mixed equilibrium.
The theory of inputs of labour deals with the description of the marginal revenue product of labour and calculation of the value of marginal revenue product of labour. It also explains why a firm’s marginal revenue product curve is its labour demand curve. At the end of this module, students should be able to
Following books are useful for students taking a principles of microeconomics course at graduate and undergraduate levels:
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